Sorting the winnings from the losers

The investment industry is set for a great divide, with some fund management firms positioning themselves for strong alpha returns while others fall further behind, according to a new book launched by Mercer.

2020 Vision: Investment Wisdom for Tomorrow looks at seven key themes that will influence the professional investment industry over the next decade, with interviews from leading investment figures.

Mercer senior associate and author Harry Liem said the future would be characterised by fierce competition resulting in big winners and big losers, and the ability for managers to sustain superior performance.

“Institutional investment is based on the search for alpha or outperformance; however, active investment managers have long battled against the erosion of alpha as their ideas and processes are taken up by competitors. The best of them are constantly searching for new ideas and new sources of information to maintain their competitive advantage.

“Only those players able to adapt themselves faster than their competitors will maintain their leading edge,” Liem said.

Bridgewater chief executive officer Ray Dalio, who was interviewed for the book, said, “The investment business will consist of alpha generators and beta replicators (and firms that do both), and the alpha generators will have very smart people who understand financial engineering and are equipped with fabulous information technology. In other words, the quality of play will increase dramatically.”