Alpha Or Beta? Challenges And Opportunities For Traditional Active Managers

Foreword

Investment managers specialising in providing low cost index-tracking products are increasingly able to generate similar returns to those of traditional active managers. Providing "beta" returns at "alpha" cost is no longer an option.

Traditional active managers face a choice between becoming more efficient beta providers or differentiating through higher alpha returns. Some may choose a third way, moving towards a "total solutions" model to specialise in providing both types of return under one roof. There are however operational challenges in doing so. Traditional active managers must achieve the more cost-efficient, standardised and scaled-up processes that are required for the provision of beta returns, without stifling the autonomy and agility required to outperform the market for alpha.