Active, Passive, Customization and Compitium
9/9/25 | Eric Alexander
The Compitium edge is the unique combination of industry, academic, research and communications experience we bring to each client assignment. And we are committed to keeping that edge sharp by staying current in each element of it. That's why I am so pleased to share with you important research Marc has completed on the future of asset management.
As one of the founders of small cap investing and a pioneer advocate of factor investing, Marc's foresight has shaped our industry. His current research, "Beyond Active and Passive Investing: The Customization of Finance," offers a similar view into our future. Recently published by the CFA Institute Research Foundation, the monograph asserts that "Customization" represents the most radical shift in the practice of asset management since the introduction of mutual funds in 1924!
Typical of Marc's work, this research challenges our current assumptions. Here, Marc reveals that, despite the widely accepted presumption that passive investing has overtaken active and will continue to grow, the passive juggernaut is actually concentrated in just one asset class and one region – equities in the US Large Cap Blend category. Across regions and all asset classes, active management continues to dominate passive as measured by worldwide AUM. While index fund AUM experienced a 1500-fold increase since 1989, it still represented only 32% of all fund AUM by the end of 2021.
Looking forward, he anticipates passive investing, particularly in the US Large Cap Blend space, could ultimately be disintermediated, unbundled and replaced by "hypermanaged" separate accounts. This customization, driven by technological advances, will facilitate a deeper understanding of client priorities and allow investors to build portfolios of many individual securities (and some select funds) assembled to meet their specific requirements. Active and passive managers will compete to develop these new offerings.
The move to widespread customization at scale, which is now beginning to gain traction in industry, is a paradigm shift. Specifically, we are moving from asset management as product (i.e., fund or ETF) to a revitalization of asset management as a service – creating uniquely personalized portfolios that deliver optimal solutions that respond to the tax requirements, individual goals, social priorities and personal interests of each investor. Think of SMAs on steroids for a wide swath of investors.
Can your business model, investment processes, distribution strategies and messaging adapt to hyper customization. Just like the introduction of mutual funds, index funds and ETFs, the investment ecosystem is about to undergo a major shift for investors, advisors and institutions. Marc and the rest of the Compitium team of experts are willing to help you successfully navigate this sea change.
The monograph is available for free and can be downloaded from a button at this link: https://rpc.cfainstitute.org/en/research/foundation/2024/beyond-active-and-passive-investing. Or reach out to us and we will send you the pdf.