2025 – another tough year for active managers

Active investment managers are facing another challenging year and are likely to continue losing share in traditional equity and fixed income strategies, according to the latest Morningstar Industry Pulse.

However, it said that firms specialising in more unconventional products are better positioned for growth with these including investments in private debt, private equity and specialised fixed-income strategies, such as diversified credit or non-investment grade debt.

“Such products typically carry higher risk, are accessible only to select investors, require intensive management, or involve subjective valuations, making them more difficult to replicate with passive investments,” it said.

The analysis said that active managers were likely to gain business at the expense of close peers rather than structural gains from passive investments.

The Morningstar analysis said the active managers it covered lacked “the robust performance needed to reclaim market share lost to exchange traded funds (ETFs) and industry funds

The analysis anticipated continued fee compression across all the covered managers through to fiscal 2029, with Magellan and Platinum facing the greatest risk due to their relatively higher fees.

Morningstar nominated Challenger, Perpetual and GQG as offering the greatest value in 2025, stating that it believed the market “underestimates several of their merits”.

“For Perpetual, these include the potential value from cost reductions and likely flow improvements. For Challenger, we see strong demand for its products and likely gross margin expansion. For GQG, these are its strong long-term track record, below-peer average fees, widespread presence on recommended product lists, and good team stability.”

It said shareholder returns for ASX-listed asset managers were mixed in 2024.

“GQG and Pinnacle outperformed the ASX 200 Total Return index, given strong performance and flows, while Magellan and Insignia also outperformed with fundamental improvements.

“Insignia also landed a takeover proposal from Bain Capital—since rejected by its board. Platinum was the weakest performer, with subpar returns, sluggish flows, and an aborted acquisition by Regal Partners.”