The traditional dominance of active asset managers in the maintenance of the portfolios of both institutional and retail investors is under heavy pressure. When both nominal and real interest rates were higher and when regulation was less arduous and costly it was significantly easier to deliver satisfactory net returns.
Operating in a low interest rate environment is challenging enough for fixed income investors who are acquiring sovereign debt at significant risk and despite it’s frequently generating negative returns before costs.
Regulatory compliance and fund administration services must then be accounted for and these alone can suck away whole percentage points of income. On top of that, the managers need to be left with sufficient excess revenue in order to cover their own costs and to leave a profit for their shareholders.