Current Trends in
What are some of the key drivers in servicing
institutional investor clients in transitioning
their portfolios? Asset flows. Dispersion. Risk
mitigation. Technological advances. Here are the
trends that William Cobbett, Head of Transition
Management Americas, is seeing from his
capital markets desk at Citi in New York, and how
they may factor into an asset owner’s choice of
Let’s talk about asset flows. Is transition
management for institutional asset managers
aligning with flows in North America from
active to passive investments?
Cobbett: Yes, much of the activity we’re
seeing is active to passive. According to Citi’s
recent analysis of net investor flows, in the
18 months from January 2015 to June 2016,
actively managed funds lost $683 billion while
inflows into passively managed funds was
+$800 billion. One reason many institutional
and retail investors are moving into passive
indexes, especially in the form of ETFs, is
because of their liquidity.
Also, credit funds have recently attracted
a tremendous amount of assets. As more
people are retiring, asset managers and retail
investors alike are looking for yield.
All that said, there is still plenty of opportunity
in active investing. That’s because active
managers may offer the potential to
outperform, to strategically and precisely
isolate risk factors, and to achieve superior
risk-adjusted returns. The prospect of
constructing a portfolio that has nearly the
same upside as an index but has significantly
less drawdown, that’s very attractive.
Speaking of flows, has there been a trend
toward high active share funds?
Cobbett: Yes, from my transition management
perch we definitely see a lot of flows toward
concentrated, high-conviction funds. I think
it would be fair to say that “high active share”
is a term that barely existed three years ago,
and now it’s what everybody talks about.
It’s fairly straightforward to construct an
index fund, whereas with high active share
funds, the concentrated mandates often
take longer, and may be susceptible to more
There’s been a lot of talk recently about
asset dispersion. What are you seeing in the
transition management space?
Cobbett: Beginning with the global financial
crisis, the entirety of financial markets across