It’s often said that market volatility leads to greater alpha generation. But Jason Malinowski, chief investment officer of Seattle City Employees’ Retirement System’s $4.6 billion portfolio, questions this belief.

“There’s not much academic or quantitative support for that conventional wisdom,” the 2025 Allocators’ Choice Awards finalist and 2023’s Innovator of the Year told Institutional Investor, adding that he is “not too surprised that active management continues to struggle regardless of the macro.”

For the Seattle pension, which is 75 percent passive in its equity allocation, active management is reserved for very targeted areas where the investment team believes it can be effective, such as Japanese equities, emerging markets, and small-cap stocks. This approach includes working with a manager that hires dedicated country specialists, with the team believing that for any chance of success in complex markets, “you need people on the ground,” Malinowski said.

In fact, the pension fund invests entirely through managers. “We don’t have any edge in selecting individual stocks or bonds or individual properties; we don’t do it at all,” Malinowski said.

Recent data from Schroders indicates that more than three-quarters of institutional investors in North America are more likely to use active management in the coming year, driven by concerns over market volatility and concentration risk in passive strategies.

Despite the enthusiasm, Morningstar research shows that only 33 percent of actively managed funds survived and outperformed their passive peers over the year ending June 2025. Success rates were just 31 percent for active U.S. equity managers and 31 percent for active bond managers.

According to Malinowski, the performance can be explained by the law of large numbers. “Anytime you have a large number of mutual funds or active managers engaging in activity and there’s this consistent headwind of fees, the average active manager is going to underperform,” he explained. Plus, with low barriers to entry creating a crowded field, he expects the averages to underperform over the long term.

SCERS’ one-, five-, and 10-year annualized returns as of June 30 were 11.0 percent, 9.7 percent, and 7.8 percent, respectively, versus its respective policy benchmarks of 10.4 percent, 9.4 percent, and 7.8 percent.

 

Is Active Due for a Comeback?

The domination of technology and growth stocks has fueled the performance of passive indexes, contributing to active management’s underperformance. But Eric Veiel, head of global investments and chief investment officer at T. Rowe Price, thinks active is due for a comeback, given the risk that comes with increasingly concentrated passive funds.

“The risk that you’re taking buying a passive benchmark is just continuing to grow because of this concentration risk,” Veiel told II. He argued that this trend is cyclical and will inevitably cause the top-heavy passive indexes to falter while active managers, which are positioned for a broader market, will excel.

“We’re not going to end up with five stocks in the index, so at some point it’s going to broaden back out again,” the T. Rowe investment chief added. “It always does, and we’re closer to that than we were before.”

 

John Crabb contributed to this article.