Practical Portfolio Performance Measurement and Attribution, 3rd Edition

2The Asset Management Industry

The most treasured asset in investment management is a steady hand at the tiller.

Robert Arnott (1954–)

Active management is a zero‐sum game before cost, and winners have to win at the expense of the losers.

Eugene Fama (1939–)

Asset management is an agency activity. Assets are managed by asset managers on behalf of asset owners. Asset owners include pension funds, endowments, insurance companies, sovereign wealth funds, family offices, high‐net‐worth individuals and retail investors. Assets under management are huge and growing: PwC¹ estimate global assets under management at the end of 2020 in excess of US$110 trillion, growing more than 40% in the past five years – see Tables 2.1, 2.2 and 2.3.

Assets are managed either separately in segregated accounts or collectively in various collective vehicles such as open‐ended mutual funds, closed‐end investment trusts, hedge funds or exchange‐traded funds (ETFs). Private equity assets are typically managed collectively in limited partnerships. Some asset managers are managers of other asset managers (multi‐fund managers).

Asset owners and asset managers are the major stakeholders in the asset management industry, which also include asset consultants (who identify and model asset owner liabilities, advise and suggest asset allocation, and help select asset managers) and assets service providers (including custodians, third‐party administrators, index providers, auditors and verifiers, prime brokers, ...