The Value of Active Fund Managers

Active fund managers research and analyse market trends to inform their decisions about the purchase and sale of portfolio assets. Their goal is to produce returns that exceed a benchmark (often a market index) or a hurdle rate. This contrasts with passive strategies, which typically seek to track the performance of a market index.

In light of recent market uncertainty and a mixed outlook for the immediate future, actively managed funds may be making a positive comeback relative to popular and competitively priced passively managed exchange-traded funds (ETFs).

Here, we take a look at the role of actively managed funds in today's market.

Do Active Funds Still Matter in a Passive-Heavy Market?

Per ASX figures, Australian ETF investment reached $200 billion at the end of 2024. This was a considerable increase on the industry’s $62 billion in assets under management in early 2020. 

However, significant growth in the popularity of passive investments doesn’t make active management redundant. In uncertain markets, proactive risk management and strategic decisions can play pivotal roles in protecting assets. 

For example, for two consecutive years, fund managers in Australian fixed-income investments have surpassed the passive benchmark. In 2024, 70% of actively managed bond funds outperformed their passive counterparts.

What Do Active Fund Managers Strive To Do?

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• Reduce volatility: Actively adjust portfolios to balance market swings and protect investor capital.
• Offer downside protection: Identify risks early and shift allocations to minimise losses during market downturns.
• Provide diversification: Pooling investments to access (and spread risk across) a potentially wider range of sectors and geographies than standard index weights.
• Continually manage funds: Monitor and rebalance portfolios to respond to market conditions in real-time.
• Bring deep industry knowledge: Leverage expertise and experience to identify strategic opportunities that drive portfolio performance.
• Leverage short-term market reactions: Exploit market inefficiencies and price movements to build sustainable, long-term value.

Why Fund Managers Should Care

Fund managers apply industry knowledge and expertise to protect client capital in volatile markets, similar to those Australia has experienced in recent years. By building differentiated, best-of-breed product lineups, an active fund manager can deliver more stable, risk-adjusted returns over time compared to their passive counterparts. Further, active fund managers can apply more agile responsible investment and ESG frameworks to portfolios, offering greater alignment for those investors with specific ESG outcomes. 

Ultimately, in a market where performance dispersion is widening and index correlations are breaking down, passive doesn’t always provide protection. 

The Benefits of Local Legal Expertise in Fund Management

At PMC Legal, we offer a clear understanding of both active and passive managed funds with deep expertise across both styles of investing. We are local legal experts providing commercial and  practical advice covering:

• Suitable fund structures for your chosen investment strategy. 
• Exchange-traded, unquoted and dual access fund offerings. 
• Local expertise for offshore fund managers entering the Australian market. 
• Compliant disclosure documents, regulatory updates and compliance advice. 
• Market insights.

When markets shift, strategic fund management and tailored legal advice get you ahead. Contact PMC Legal for practical legal solutions to keep you competitive and compliant.