RT Journal Article
SR Electronic
T1 The Economics of Active Management
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 16
OP 24
DO 10.3905/jpm.2000.319742
VO 26
IS 2
A1 Robert G. Snigaroff
YR 2000
UL https://pm-research.com/content/26/2/16.abstract
AB The active management industry has supply an demand characteristics and an industry total amount of dollars of produced value that buyers of active management products ought to consider in structuring their efforts to produce alpha. The author considers pension fund buyers of active management. Given that there is a maximum amount of possible excess return available to the pension fund buyers (an amount that can grow at the expense of other alpha producers), in the aggregate this group reduces value if there is oversupply. The author proposes that informed sellers are able to create excess demand because of a principal–agent issue within buyer organizations. Partly as a result of their unique history, pension funds have structure themselves suboptimally to produce alpha; they need to consider ways to address the principal–agent issues and to exploit their competitive advantages to be successful in this business.