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RP: It’s usually seen as a good thing for consumers when there’s more choice on offer.
The global asset management industry has mushroomed in size since the 1960s, but generally, that hasn’t resulted in better products or lower costs for investors.
Research by Morningstar shows that the industry is finally contracting — a development viewed by researcher Jeffrey Ptak as a positive one.
JP: This is an industry that has dependably grown, the number of funds and the assets for that matter, have grown — interrupted by the occasional bear market, but even that hasn’t been enough to arrest the trend. And what we’ve seen in the recent years is that that trend has actually begun to reverse; and through mergers and liquidations (and also a dearth of new fund launches), we’re starting to see the number of funds contract. And I guess the argument that I posited in the piece — let’s call it “heal thyself”… it’s this notion that the industry needs to become more focused and to offer a more fairly-priced proposition and the only way that’s gonna happen is if there’s less product on the shelf.
RP: But many observers still believe the industry is far too big.
Growing commercial pressures mean that fund management companies are still too quick to close underperforming funds and replace them with new ones.
JP: There are some firms out there that are quite disciplined, and they don’t succumb to impulse and bring out products at the first whiff of a trend, or something that they can sort of sink their fangs in and make some money from. But then, there are other firms who have been less disciplined, and have brought out products at the wrong time or are trying to appeal to many different instincts or imperatives that they believe are out there. And so the industry becomes a bit overgrown, and yes — one of the consequences of that is that you see funds come and grow. It’s not uncommon after a fund underperforms to see it merged or liquidated away.
I think that the landscape is changing and firms, operators are having to be more disciplined in thinking about what they are good at, or what they are aspire to be good at, and therefore what products to bring out. And that explains why we’re seeing some of the slowing of the growth that we have seen in recent years, and some of the contracting consolidating that we have seen.
RP: Of course, it’s the new funds that tend to attract the most publicity.
But generally speaking, investors should steer clear.
The fact that a fund is new certainly doesn’t mean that it’s any better than what’s gone before.
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