US institutional asset owners split on active/passive management for public market exposure

Written by Adam Cadle

20/05/2025

US institutional asset owners remain split on whether active or passive management offers the best risk/return profile for public market exposure, according to latest research from Cerulli.

More than half of US institutional asset owners (57%) said they will use investment strategies that can offer the best risk/return profile, regardless of whether it is an active or passive approach.

Thirty per cent of asset owners said they prefer active strategies, while another 29% prefer passive strategies.

For those that prefer passive strategies, cost is often a reason why, with 25% saying they invest in active only in certain asset classes because of their higher cost. Asset owners said they have sought out passive in public equity markets to minimise their risk exposures in that portion of the portfolio and to maximise their risk budgets for higher-cost alternative strategies. Others use the more predictable, pure-play exposures that indices can provide for tactical purposes in their portfolios, such as addressing gaps in portfolio allocations and making directional bets.

Across all institutional channels, the majority (75%) of asset owners report using passive equity exchange-traded funds (ETFs).

Looking ahead, nearly 40% of asset owners told Cerulli they plan to increase their use of the ETF vehicle, the highest percentage of any vehicle in Cerulli’s survey.

“For asset managers offering passive strategies, a clear opportunity exists to continue to capitalise on their use by emphasising the low-cost nature of passive strategies relative to active strategies,” said Brendan Powers, director, Cerulli.

“While significant demand still exists for active managers, they need to be best of breed if in an asset class in which passive will be sought after (e.g., large-cap equities); otherwise, they may be in an uphill battle to find winnable mandates.”

Related Articles