The new threat facing active fund managers

Stock-, bond-picking funds pressured by private-market investments but have wiggle room

- Telis Demos

Active stock pickers always seem to be running out of road—and now face the rise of private-market investments. For all the gloom though, they still have room to maneuver.

Funds that choose what stocks and bonds to buy and sell have come under increasing pressure from index funds. Not only are those "passive" options tough to beat these days, thanks to an ever-rising S&P 500, but they also typically carry lower fees than "active" ones.

One port in the storm for active managers of public investments has been target-date funds, which have emerged as enormously popular instruments used by many 401(k) savers. These funds shift allocations over time as the investor ages, which can lend itself to an active strategy. So there are widely used actively managed target-date funds, as well as funds that blend active and passive strategies.

Now, managers of alternative assets are hoping to break into that corner of the market. Since 401(k) plans, and target-date funds in particular, are typically treated by investors as long-term, set-it-and-forget-it money, that can match up with the way private funds are typically managed. And a recent executive order from President Trump may make it easier for them to enter this market.