(Bloomberg) — Apollo Global Management and Citadel, giants in the world of active investing, are both pointing out risks that exist as passive funds gain in prominence.
At Apollo, the view is that the hidden costs of the passive-investing juggernaut include higher volatility and lower liquidity. Ken Griffin’s Citadel, meanwhile, says regulators undervalue active managers’ role and are crimping their growth. US exchange-traded funds — a bastion of passive investing — have record net inflows of $913 billion this year, and combined assets exceeding $10 trillion, thanks to the buoyant US stock market.
A report by Apollo managers Felix von Moltke and Torsten Slok focused on “higher asset-price volatility, reduced liquidity, and possible contribution to heightened market concentration.”
For large company shares in particular, growth in passive investment — which is always on the long side — “makes it more unattractive and more risky to be short, which again means more upward momentum in the price of large stocks,” von Moltke and Slok wrote. “When active investors turn passive, large cap stocks will benefit disproportionately.”
Passive investors account for more than half of the assets in mutual and exchanged-traded funds globally, they said.
Citadel’s global head of government and regulatory policy, Stephen Berger, meanwhile spoke on a panel at a conference organized by the Federal Reserve Bank of Cleveland and the Office of Financial Research on Thursday. He said passive investing created financial stability risks, even as it has provided “very positive” low-cost market access for many investors.
The success of passive management, he said, “is predicated upon having active managers who are continuing to do the fundamental research to identify what’s undervalued, what’s overvalued, and then expressing those thesis in the market in a way that maintains accurate pricing, maintains efficient pricing, and by extension ensures that there’s the optimal allocation of capital to the economy and to relative assets.”
In some cases, Berger said, oversight is “impairing the ability of a shrinking universe of active managers to continue to do the job that they need to do,” Berger said. To the extent this happens, “I think we end up with much more system-wide challenges with respect to valuations and capital allocation that likewise could present a material financial stability risk.”
Take a look at our comprehensive guide to the best and most popular information ebooks and products available today on Detoxing, Colon Cleansing, Weight Loss and Dating and Romance. They are all in one spot, easy to find and compere to make a quick selection for the product that best fits your needs or wants.
So browse through a category and make your preferred selection and come back here to read more choice articles and get a few more helpful tips on ways to help your enhancement.
As an Amazon Associate I earn from qualifying purchases. “saubiosaubiosuccess.com is a participant in third party affiliate and advertising programs; The Amazon Services LLC Associates Program, Awin network, and other affiliate advertising programs are designed to provide a means for sites to earn advertising fees and commissions by advertising and linking to products on other sites and on Amazon.com. Amazon and the Amazon logo are trademarks of Amazon.com, Inc, or its affiliates.”
We use anonymous cookies and various 3rd-party services to optimise and to offer you a better, more personalised, browsing experience with advanced accessibility enhancements.
Dismiss
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
