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The question whether active portfolio management can systematically improve a portfolio’s return has been debated for long. The rise of low-cost ETFs, FinTech and AI has been reinforcing pressures on active portfolio managers to prove the value for money of their service. At the same time, the financial crisis and the rise of populist policies have highlighted the importance and the potential benefits for portfolio performance from anticipating low-probability high-impact events. Furthermore computer trading and AI-assisted portfolio analysis and investment strategies are making fast progress, reducing the cost of “active” management strategies in the future. From a financial stability perspective, the widespread use of similar passive management strategies or similar forms of portfolio investment algorithms may generate synchronous behaviour, reinforce price fluctuations and pose risks to financial stability. The large scale of ETF markets may also make potential instability from this sector systemically important.

David Chambers, Elroy Dimson, 20 October 2014

Yale University has generated annual returns of 13.9% over the last 20 years on its endowment – well in excess of the 9.2% average return on US university endowments. Keynes’ writings were a considerable influence on the investment philosophy of David Swensen, Yale’s CIO. This column traces how Keynes’ experiences managing his Cambridge college endowment influenced his ideas, and sheds light on how some of the lessons he learnt are still relevant to endowments and foundations today.

Events

CEPR Policy Research