Fenrir Research · Industry Analysis · Part I & II
Asset Manager Pivot: The Traditional Squeeze
How capital is bifurcating away from traditional active — and what comes next for asset management.
The opening moments of Kid A announced that the band that wrote Creep no longer existed. Everything had been found a new arrangement — familiar elements rearranged into something the form had not seen before.
Radiohead · Everything In Its Right Place · Kid A (2000)
Asset management is having its Kid A moment. The 60/40 still works on paper. AUM is still growing. But the form is being rebuilt — passive at the floor, alternatives at the ceiling, the middle quietly vacating. This report is about what that looks like, why it is happening now, and where capital is going.
Executive Summary
Global asset management ended 2024 at a record $128 trillion in AUM. Inside that headline, the industry is undergoing its most significant structural reorganisation in four decades. Three observations frame the rest of this report.
First, the traditional active mainstream is hollowing. SPIVA year-end 2025 shows 79% of large-cap active equity funds underperformed the S&P 500 in 2025 — the fourth-worst year in the scorecard’s 25-year history. Across all domestic categories, 95% of active funds have underperformed over 20 years. In 2025, ICI data shows passive mutual fund and ETF AUM surpassed active AUM for the first time. Mutual funds bled $551 billion through November 2025; ETFs absorbed $1.24 trillion. The directional flow has been one-way for a decade, but 2025 was the year the stock crossed over.
Second, the next generation of capital owners does not behave like the current one. Cerulli now projects $123.7 trillion of generational wealth transfer through 2048, with $45.6 trillion going to Millennials, $39.0 trillion to Gen X, and $15.2 trillion to Gen Z. The Bank of America Private Bank 2024 study of wealthy Americans found younger investors hold 31% of their portfolios in alternatives and crypto versus 6% for older investors. Seventy-two percent of millennials and Gen Z do not believe traditional stocks and bonds can deliver above-average returns. Ninety-three percent plan to increase alternatives exposure. These are not marginal preference differences. They are a generational rejection of the post-war asset allocation template.
Third, capital is migrating in both directions at once. The middle is hollowing because passive sets the price floor on beta and alternatives capture the ceiling on alpha. This is not a story about active losing to passive in some monolithic sense — the active ETF wrapper grew at a 59% three-year CAGR and gathered $459 billion in 2025. It is a story about the active mutual fund as a 1970s product format giving way to a barbell: cheap systematic at the core, expensive alternatives at the satellites, and a thinning layer of traditional active in between. This report walks through Parts I and II of that thesis. Subsequent Parts cover product innovation, the expansion of the alternatives pie, infrastructure as the flagship allocation, the institutional unlock, and a forward construction of the 2030 portfolio.
Bottom Line Up Front
The barbell is not a forecast. It is already the shape of the industry. The remaining question is how fast the middle vacates, how much of the wealth transfer reinforces the trajectory, and which managers capture the economics on each end. Parts I and II below establish the structural and demographic forces. Parts III through VII translate those forces into product, capital, and portfolio implications.
Part I · The Squeeze on Traditional Active
Fitter Happier reads like a corporate memo set to ambient texture — the optimised, mechanised, slowly hollowing-out version of a life that still ticks every box. The active mutual fund complex has become its asset management equivalent.
Radiohead · Fitter Happier · OK Computer (1997)
The performance ledger is settled
The SPIVA Scorecard, published semi-annually by S&P Dow Jones Indices since 2002, has become the de facto scorekeeper of the active-versus-passive debate. The year-end 2025 edition does not soften the verdict. Of all active large-cap U.S. equity funds measured, 79% underperformed the S&P 500 in calendar 2025 — worse than the 65% rate observed in 2024 and the fourth-worst year for active large-cap managers over the 25-year history of the scorecard. The 2025 deterioration is itself notable: large-cap underperformance was 14 percentage points higher than the prior year, with the active community failing to capitalise on a market environment that featured rising earnings dispersion and rotation away from the most concentrated names — conditions theoretically favourable to active selection.
The longer the time horizon, the more decisive the gap. Over five years, 91% of all domestic funds underperformed. Over ten years, 90%. Over twenty years, 95%. Across all U.S. equity categories — large-cap growth, large-cap value, mid-cap, small-cap, multi-cap — the 15-year underperformance rate is so uniform that the more interesting question is no longer whether active managers underperform on average but how much active management remains as a structural product category at all.
| Fund Category | Benchmark | 1 Yr | 5 Yr | 10 Yr | 20 Yr |
|---|---|---|---|---|---|
| All Domestic Funds | S&P Composite 1500 | 79.8% | 91.5% | 90.4% | 95.0% |
| All Large-Cap Funds | S&P 500 | 78.8% | 89.0% | 85.6% | 92.9% |
| Large-Cap Growth | S&P 500 Growth | 95.5% | 95.3% | 91.7% | 99.6% |
| All Mid-Cap Funds | S&P MidCap 400 | 55.4% | 72.3% | 81.1% | 89.7% |
| All Small-Cap Funds | S&P SmallCap 600 | 40.7% | 62.7% | 76.0% | 90.3% |
| All Multi-Cap Funds | S&P Composite 1500 | 68.0% | 90.0% | 89.1% | 93.6% |
Source: S&P Dow Jones Indices SPIVA U.S. Scorecard Year-End 2025. Percentage of active funds underperforming benchmark. Data as of December 31, 2025.
The 2025 SPIVA report also published, for the first time, a multi-asset extension of the scorecard. By simulating active 60/40 portfolios against blends of indices, the report found that 96.9% of theoretical multi-asset active portfolios would have underperformed an equivalent index blend over the measurement period. That is a more important statistic than the headline equity number because it speaks directly to the actual product that retail and institutional investors hold. The 60/40 active portfolio — the workhorse of traditional balanced funds, target-date glide paths, and endowment-lite allocations — almost always loses to its passive equivalent. The persistence scorecard reinforces the point: of top-half active funds in 2021, only a handful remained top-half over the next four years; for large-cap funds, persistence was below what random distribution would predict. When outperformance occurs, it is statistically indistinguishable from luck.
Fees compress on the runway out
The performance problem would matter less if active management were priced to its delivery. It is not. The asset-weighted expense ratio across all U.S. mutual funds and ETFs has declined from 0.83% in 2005 to 0.34% in 2024, saving investors roughly $5.9 billion in 2024 alone. Active equity fund fees average 0.60%, down from approximately 0.80% a decade ago. Index fund fees are approaching a hard floor — many prominent broad-market index funds now charge below 0.05%, and Vanguard’s 2025 announcement of fee cuts across 87 funds will return another $350 million annually to investors. The race to zero is no longer hypothetical at the passive core.
The impact on traditional asset manager economics is severe. Double-digit AUM growth has failed to produce meaningful operating leverage because fee rate declines offset volume gains. BCG’s 2025 Global Asset Management Report, drawing on a 270-firm benchmarking sample, found that more than 70% of the industry’s $58 billion in revenue growth in 2024 was driven by market performance rather than investor inflows. Stripped of beta, the underlying revenue trajectory is materially weaker than the headline AUM number suggests. Operating costs, meanwhile, have grown at roughly 5% per year since 2010. The arithmetic is straightforward: if revenue growth is increasingly market-dependent while costs are sticky and fee rates compress, the operating margin of a traditional active manager structurally declines unless scale, mix, or distribution changes the equation. BCG’s view is that up to 20% of existing firms may be acquired or eliminated. That is consolidation framed as an inevitability rather than a tail risk.
Figure 1.1 · Expense ratio compression, 2005–2024
Asset-weighted average expense ratio across all U.S. mutual funds and ETFs. The active product still charges, but the floor on beta is approaching zero.
Source: ICI Investment Company Fact Book 2025; Morningstar; Vanguard 2025 fee announcement. Fenrir Research synthesis.
The crossover — 2025 was the year the stock turned
Flows tell the story before AUM does. Through the first eleven months of 2025, U.S. mutual funds experienced net outflows of $551 billion. Over the same period, ETFs took in $1.24 trillion of inflows. The gap between the two vehicles has widened from $890 billion in 2024 to $1.79 trillion in 2025 — investors are not just allocating new money to ETFs, they are actively unwinding mutual fund positions. Active mutual funds bled $640 billion across 2025, marking the ninth outflow year of the past decade. The cumulative divergence is what most clearly settles the argument: active ETFs have attracted nearly $1.2 trillion in inflows over the past decade, while active mutual funds have seen nearly $4 trillion in cumulative outflows.
The headline crossover happened in March 2026. ICI’s official survey reported combined indexed mutual fund and ETF AUM at $19.09 trillion versus combined active mutual fund and ETF AUM at $17.12 trillion. Passive has overtaken active in absolute terms. The historical equilibrium that defined American asset management for sixty years — active as the dominant product format, passive as the cost-conscious alternative — has inverted. For the first time, the default product is passive and active must justify itself against that default.
$19.1T
Passive Fund AUM (Mar 2026)
$17.1T
Active Fund AUM (Mar 2026)
$1.79T
2025 MF/ETF Flow Gap
$640B
Active MF Outflows 2025
The active ETF wrinkle — wrapper, not strategy
The cleanest read of the data is complicated by one phenomenon that deserves its own treatment. Active ETFs — ETF-wrapped strategies that do not track an index — have grown explosively. Active ETF AUM stood at $1.47 trillion at year-end 2025, representing 11% of the total ETF market, with $459 billion of inflows in calendar 2025 alone (a record). The three-year compound annual growth rate of active ETF assets is 59%, nearly double the rate of the broader ETF industry. Over 80% of new ETFs launched in 2025 were active. In Q1 2026, active ETFs gathered $135 billion while active mutual funds simultaneously bled $332 billion.
This is not, however, a vindication of active management in the traditional sense. It is a vindication of the ETF wrapper. The active ETF is structurally cheaper to operate, more tax-efficient, more transparent, and more liquid than the mutual fund equivalent. What is happening is wrapper migration: capital that previously sat in a high-cost active mutual fund is moving into a lower-cost active ETF that may run a similar strategy at half the expense ratio. The SEC’s 2025 approval of ETF share classes for mutual funds will further accelerate this — mutual fund sponsors can now offer ETF versions of existing strategies without re-launching them as standalone funds, effectively converting their AUM into the more efficient format.
The active ETF phenomenon refines but does not undermine the central thesis. The traditional active mutual fund — the product format that defined the industry from the 1970s through the 2010s — is being euthanised. Some of its DNA migrates into active ETFs. Some migrates into systematic and quant-enhanced strategies. Some migrates into alternatives. But the format itself, with its high-touch distribution, embedded loads, and expense-ratio inertia, is structurally finished as a growth product. What replaces it is the subject of Part III.
The Squeeze in One Sentence
Traditional active asset managers are caught between three forces — performance that cannot beat the index, fees that cannot rise, and a product format the next generation of capital does not want. The arithmetic does not resolve in their favour without strategic reinvention into the ends of the barbell.
Part II · The Great Wealth Transfer & The New Investor
No Surprises sketches a portrait of a quiet, ordered, unremarkable life — the suburban template optimised for stability rather than ambition. It is the portfolio the next generation has inherited and openly rejects.
Radiohead · No Surprises · OK Computer (1997)
The number is bigger than people think
The Great Wealth Transfer is the cleanest demographic input into any forward thesis on asset management. Cerulli’s earlier vintage estimate of $84 trillion through 2045 has been revised upward. The 2024 vintage now projects $123.7 trillion through 2048, with $105.3 trillion going to heirs and the remaining $18.4 trillion to charity. The revision is mechanical — underlying asset values appreciated faster than the original projection assumed, and concentration at the top of the wealth distribution has intensified. By the end of 2023, U.S. households over age 60 controlled 61% of national wealth, up from 54% just three years earlier. High-net-worth households — defined by Cerulli as having $10 million+ net worth — control approximately 45% of total investable assets. The transfer is not a broad-based dispersion of inheritance. It is a concentrated handover of concentrated wealth.
The two-sided geometry of the transfer is the most important framing. The giving side is dominated by a single cohort — Baby Boomers passing $79.0 trillion of the total — while the receiving side is split principally between Generation X ($39.0 trillion) and Millennials ($45.6 trillion). The asymmetry between the inflows and outflows of each generation determines the timing and the portfolio behaviour of the recipients.
Figure 2.1 · The Great Wealth Transfer flowchart, 2024–2048
Intergenerational wealth transfer, US$ billions. The giving side is concentrated in Boomers ($79.0tn); the receiving side is concentrated in Gen X and Millennials.
Source: Cerulli Associates, Federal Reserve, US Census Bureau, IRS, BLS, SSA. From Cerulli “US High-Net-Worth and Ultra-High-Net-Worth Markets 2024.” Ages as of 2023. Currency in 2023 US dollars. Fenrir Research adaptation.
Generation X warrants particular attention because the Cerulli timing analysis surfaces something the headline number obscures. Over the next ten years specifically, Gen X is projected to receive approximately $1.4 trillion annually — the largest inheritance flow of any generation over that nearer horizon. Millennials inherit more in absolute terms but the bulk of their flow arrives in the late 2030s and 2040s. For asset managers and wealth managers, Gen X is the immediate commercial opportunity. They are the recipients in their peak earning years, asset accumulation phase, and decision-making prime — not the silent late-receivers of an inheritance still decades away.
A generational portfolio is not a smaller portfolio — it is a different portfolio
The Bank of America Private Bank’s 2024 Study of Wealthy Americans surveyed over 1,000 high-net-worth individuals across the generational spectrum. The findings on portfolio allocation by generation are the single most important demographic data point in this report. Younger investors — millennials and Gen Z, ages 21 to 43 — allocate 31% of their portfolios to alternatives and digital assets. Older investors — Gen X, Baby Boomers, Silent Generation — allocate 6% to the same categories. Stocks and bonds account for 75% of older investor portfolios but only 47% of younger investor portfolios. That is a structural three-times overweight in alternatives by the demographic cohort that will receive the largest wealth transfer in history.
Figure 2.2 · Portfolio allocation by generation
The generational divide is not a tilt — it is a structural reorganisation of the allocation template.
Source: Bank of America Private Bank, 2024 Study of Wealthy Americans. Survey of 1,000+ HNW individuals. Fenrir Research presentation. Allocations rounded; totals approximate 100%.
Three findings inside the BofA study deserve to be highlighted individually because they shape every downstream conclusion in this report.
The 72% rejection of traditional 60/40. Seventy-two percent of millennial and Gen Z high-net-worth investors agreed with the statement that it is no longer possible to achieve above-average investment returns by investing solely in traditional stocks and bonds. Among investors aged 44 and over, only 28% agreed. This is not a marginal preference shift — it is a generational disbelief in the post-war allocation template. The cohort that will inherit $61 trillion does not believe the asset classes that built that wealth will deliver the same outcome for them.
The 93% future intent to allocate more to alternatives. Younger HNW investors are not at their target allocation. Ninety-three percent of younger respondents reported plans to allocate more to alternatives over the coming years. The current 17% alternatives weight (excluding crypto) is a floor in their stated intent, not a ceiling. If even half of that intended shift materialises, the alternatives industry sits at the beginning of a multi-trillion-dollar demographic tailwind.
The risk-tolerance invariance. The most analytically striking finding is buried in the survey detail. Younger wealthy investors hold roughly the same allocation of stocks, bonds, alternatives, and crypto regardless of whether they self-identify their investment strategy as aggressive, moderate, or conservative. For older investors, the conservative-to-aggressive spread produces materially different portfolios. For younger investors, it produces nearly identical ones. This suggests the generational allocation shift is not driven by individual risk preference but by a shared generational view of what constitutes a “normal” diversified portfolio. The 60/40 has been culturally replaced with something closer to 50/30/20 (equities/fixed income/alternatives-including-crypto) as the new default — and that new default applies even to the cohort’s most risk-averse members.
Why This Matters For Asset Managers
If the younger HNW cohort treats alternatives as a default rather than a tilt, the implication for asset management AUM mix is mechanical. As the $123.7 trillion transfer progresses, the held allocation of inherited assets will rebalance toward the recipients’ preferences rather than the bequeathers’. Even with no change in individual risk preference, the simple act of generational transfer produces a structural reallocation toward alternatives.
The behavioural and informational substrate
Two underlying behavioural patterns sustain the generational portfolio divergence. They are worth naming because they suggest the trend is not a fleeting cycle effect that mean-reverts as millennials and Gen Z age into the more conservative postures of their parents.
First, the formative-experience effect. Millennials reached investing age in the shadow of two market crashes — the 2000 dot-com bust and the 2008 global financial crisis — followed by a decade of zero interest rates that delivered punishing returns to traditional fixed income. Their bond instinct is not the same instinct that Boomers carry, who came of age in the late 1970s and early 1980s when fixed income yields offered a genuine real return. Gen Z reached investing age during COVID, the 2020–2021 retail trading boom, and the meme-stock and crypto cycles. Their reference frame for what constitutes investable opportunity is structurally wider than the prior generation’s, and includes asset classes (digital assets, fractional collectibles, private market access vehicles) that Boomer-era investors do not recognise as investments.
Second, the informational substrate. The BofA study and corroborating Bloomberg data both find that younger HNW investors source investment information predominantly from social media platforms — YouTube, Instagram, TikTok — rather than traditional financial media. Approximately 60% of Gen Z investors use YouTube as a primary investment information source; 34% rely on TikTok. This shifts the gatekeepers of investment legitimacy from traditional sell-side research and financial advisor channels to a fragmented ecosystem of creators, communities, and platform algorithms. Products that go viral on social media — thematic ETFs, single-stock options, crypto, private-credit access vehicles — benefit from a distribution channel that did not exist for prior generations. Products that require gatekeeper validation in legacy channels are at a structural distribution disadvantage.
The collectibles digression — a useful warning
One survey finding from the BofA study deserves a critical footnote rather than an enthusiastic embrace. Approximately 94% of wealthy millennial and Gen Z investors expressed interest in collectibles — watches, sneakers, rare cars, art, sports memorabilia — versus 57% of Baby Boomers. This is sometimes cited as evidence of generational innovation in portfolio construction. Fenrir Research’s view is more cautious. Collectibles markets are characterised by high storage and authentication costs, illiquidity, taste-driven valuation, and historically poor risk-adjusted returns relative to financial assets over multi-decade horizons. The collectibles enthusiasm is better read as a signal of generational scepticism toward traditional financial markets than as a vindication of collectibles as an asset class. For the purposes of this report’s allocation framework, we treat institutionalised alternative asset classes — private equity, private credit, real estate, infrastructure, hedge funds — as the structural beneficiaries of the generational shift. Collectibles are a sentiment indicator, not an investable trend.
The home ownership deferral — the missing 40 of the 60/40
One additional structural difference between generations is worth flagging because it affects asset allocation indirectly but materially. Millennials and Gen Z have deferred or rejected home ownership at rates significantly above prior generations at the same age. For Boomers, primary residence wealth was the single largest household asset class and the largest passive de-facto allocation to leveraged real estate. For younger generations, that allocation slot is either delayed by a decade or substituted with liquid investment portfolios. The shift removes a major passive real estate exposure from the household balance sheet and creates room for explicit alternatives allocation — including REITs and private real estate funds — that would otherwise have been crowded out by the mortgage and the home. The net effect is to amplify the structural shift toward financial alternatives because the housing wealth that historically anchored the older generation’s portfolio is no longer playing the same role.
The Wealth Transfer In One Sentence
$123.7 trillion is moving from a cohort that holds 75% in stocks and bonds to a cohort that holds 47% in stocks and bonds, does not believe the 60/40 works, plans to increase alternatives exposure regardless of risk tolerance, and gathers its investment views from a fragmented social-media information substrate. The directionality is settled. The only open questions are the pace of the transfer and whether the next generation’s preferences are accommodated by managers or arbitraged away by them.
Where the Next Five Parts Go
Parts I and II establish the supply-side squeeze on traditional active and the demand-side rejection of the traditional allocation template. The remaining five Parts of this report translate those structural forces into commercial, product, and portfolio outcomes.
Part III · Product Innovation: The Barbell Forms. The passive core extends from index ETFs into direct indexing, factor strategies, quant-enhanced indexing, and thematic ETFs. The alternatives end extends from institutional drawdown funds into interval funds, BDCs, evergreen vehicles, and tokenised access products. The economics of each. Epigraph: Radiohead · Idioteque.
Part IV · The Alternatives Pie Expanding. Preqin and PitchBook AUM trajectories. Category breakdown across PE, private credit, real estate, infrastructure, hedge funds, and secondaries. Manager consolidation. Insurance balance sheet integration. Distribution expansion into wirehouse, RIA, and retirement channels.
Part V · Infrastructure: The Flagship Allocation. The longest section of the report and the centre of gravity of the thesis. The structural drivers — AI data centre capex, energy security, transition capex, grid resiliency, urbanisation. The return framework. Manager landscape. Regional deep-dives across the United States, Europe, the Middle East, India, and Africa — weighted by growth depth. Epigraph: Radiohead · Pyramid Song.
Part VI · The Institutional Unlock and the 401(k) Frontier. Regulatory liberalisation. The August 2025 executive order on defined contribution plan alternatives access. ERISA fiduciary debate. AUM implications of even a 5–10% migration of DC plan assets into alternatives.
Part VII · The 2030 Portfolio. Three forward scenarios. Implied allocation shifts. Manager AUM winners and losers. Epigraph: Radiohead · Reckoner.
Sources & Disclaimer
S&P Dow Jones Indices SPIVA U.S. Scorecard Year-End 2025. ICI Investment Company Fact Book 2025 and ICI March 2026 Combined Active and Index data release. Cerulli Associates: U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2024, and Cerulli Edge June 2025. Bank of America Private Bank, 2024 Study of Wealthy Americans. BCG Global Asset Management Report 2025 (From Recovery to Reinvention). Morningstar Direct Asset Flows Module. SEC DERA Working Paper on Active ETFs, February 2026. SSGA Active-Passive Debate 2025. TD Securities U.S. ETF Recap 2025. American Century Investments 2025 ETF Industry Review. J.P. Morgan Asset Management Monthly Active ETF Monitor Q1 2026. BlackRock 2024 Global Insurance Report.
DISCLAIMER · This analysis is for informational purposes only. Not investment advice. All forward-looking assessments are analytical judgements of Fenrir Research based on cited sources. Past performance is not indicative of future results.
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