Citi Sees Brightest Future in Actively Managed Strategies

Shifts in industry wide assets under management (AuM) are projected to favour unconstrained long strategies, smart beta products and liquid alternatives, according to a Citi survey.

Citi’s findings are based on one-on-one interviews with 100 firms globally, covering investment managers with $25 trillion AUM and investors and intermediaries with AuM of $5trillion.

Convergence between asset managers, hedge funds and private equity firms is resulting in an explosion of new product creation and complexity, Citi notes. Rather than looking at products individually, investment managers surveyed for the report expressed their belief that in the future these offerings will be seen as building blocks to create bespoke solutions for institutions and packaged solutions for retail clientele. New dynamically managed multi-asset class solutions (MACS) targeted at retail will include an unconstrained long core, liquid alternative exposure and risk hedging via an emerging set of Smart Beta tools that isolate specific risk factors.

AuM in smart beta and actively managed ETF products is projected to rise from $265 billion in 2014 to $1.1 trillion by the end of 2019 – more than a 4x increase – making this the fastest growing product set in the asset management industry, Citi finds.

Citi’s survey also finds that unconstrained long strategies will eclipse passive benchmark fund growth to become the second largest asset pool in the publicly traded fund space by 2019. Passive benchmark AUM (across separately managed accounts, mutual funds and ETFs) is seen rising from an estimated $6.7 trillion in 2014 to $10.7 trillion by the end of 2019. Actively managed long only benchmark funds will continue as the largest asset pool, but proportionately these strategies are losing market share, Citi reports.

Liquid alternative AuM is seen as more than doubling in the next five years from $817 billion in 2014 to $1.7 trillion by the end of 2019 according to Citi’s projections.