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An Upside to Fee Compression?

Fee compression is driving growth in passive strategies – but a new survey finds opportunity in the trend, even for active managers.

The survey, which is the product of a partnership between Cerulli Associates and the Investment Adviser Association (IAA), notes that in general, use of exchange-traded funds is on the rise, but the space is dominated by very few players. The report’s authors say this explains asset managers’ overwhelmingly (93%) being “not interested” in passive/low-fee solutions.

Nearly one-third of the survey respondents – active asset managers and wealth managers who position asset allocation as core components – noted that passive and strategic beta are a threat.

According to the report, as many providers consider consolidating their fund platforms, active managers’ ability to create alpha as well as differentiate themselves and outperform their peers at reasonable costs will, in all likelihood, benefit from reduced competition.

Cerulli says that an uptick in acquisitions and succession planning will unfold during the next two years, and that those firms with the capacity to acquire other businesses will not only head into a buyer’s market, but will also find opportunities for both vertical and horizontal growth, depending on where they want to strengthen their firms.