Active managers losing customers even as performance improves
Active managers are losing business even as their performance improves, according to a report by Morgan Stanley and Oliver Wyman. The firms' joint analysis has shown that the link between fund performance and asset flows is breaking down, with active managers coming under fee pressure from cheaper passive funds. A number of firms will be affected by the switch to passive funds, including T-Rowe Price, Franklin Templeton and Janus Capital, said the report. 
 

You've probably heard that before, but a report out March 17 by Morgan Stanley and Oliver Wyman indicates that this new landscape may be worse for professional investors than originally thought.Just to recap: Active managers are stock pickers, who charge higher fees with the promise of doing better than the broader market. Passive managers are winning investors over with the promise that nobody can truly beat the market so you might as well keep things cheap.

In their annual blue paper on the state of the finance industry, titled "The World Turned Upside Down," the firms say that that active managers could be in more trouble than they realize, thanks to a breakdown in the relationship between price and performance.

"Demand for Asset Management product is increasingly price elastic, not performance elastic – the correlation between performance and flows is breaking down," the report said.

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To put it another way, that means having benchmark-beating returns is not going to be enough to protect a fund from fee pressure.

Lower fees mean less revenue, and less revenue means either profit falls, or you cut costs (jobs), or both.

Morgan Stanley slashed earnings estimates for a number of fund managers including T-Rowe Price, Franklin Templeton, and Janus Capital as part of the report. It said: