AllianceBernstein's earnings report Thursday provided more evidence of institutional investors preferring passive strategies over active funds, even as markets turned volatile in the first quarter.
The asset manager said it had $2.2 billion of outflows from the actively managed portion of its institutional business during the first quarter, compared with $600 million pulled from its passive strategies. During the same period, BlackRock saw its institutional clients pull $7.1 billion from active strategies while adding about $10.4 billion to its index funds, according to the firm's April 12 earnings statement.
Active managers have been struggling to keep institutional investors from moving money to cheaper passive strategies that have outperformed during the bull market. While more volatile markets may provide active managers the opportunity to show their strength relative to the indexes that serve as their benchmarks, investors may not be convinced that the higher fees are worth the risk of being disappointed.
“Following a robust 2017, mounting concerns over inflation, rising interest rates and geopolitical events made for turbulent markets in the first quarter of 2018,” Seth Bernstein, president and chief executive officer at AllianceBernstein, said in the firm's earnings statement. These factors hurt asset flows even as a majority of its investment strategies performed well, he said.
AllianceBernstein, which also manages money for individuals and private wealth clients, had $595 billion of assets at the end of March. Institutional investors are the firm's biggest clients, representing $265 billion of assets, or about 45 percent of the total under management.
[II Deep Dive: Big Pay Day for BlackRock's Larry Fink]
BlackRock said in its earnings statement that institutional active assets dropped in the first quarter mainly due to fixed-income outflows linked to profit-taking and cash repatriation planning, as well as multi-asset outflows resulting from a single redemption tied to a client merger. On the brighter side of active business, alternative strategies drew net inflows of $1.4 billion from institutional investors, including hedge funds, private equity and infrastructure offerings, according to the statement.
“Investors experienced a spike in market volatility during the quarter, driven by concerns over global trade policies, a heightened focus on rates and inflation, and headlines in the technology sector,” BlackRock's CEO Larry Fink said in the earnings statement. “Institutional investors, in particular, reacted to these factors, by de-risking and re-balancing.”