BNP Paribas Asset Management (BNPP AM) CEO Sandro Pierri has warned of the “unintended consequences” of passive growth as he backed the comeback of active management over the next decade.
Speaking at the Trade Tech conference in Paris, Pierri (pictured) said the growth of passive funds – dominated by US equity markets – is pushing flows towards the US economy and called for a regulatory and political framework to “incentivise savings towards Europe”.
Discussing how to make Europe’s capital markets more competitive, Pierri said: “We need to think about the unintended consequences of active and passive.
“We are just channeling 70% of incremental flows to the US economy, not European economies. We need to make sure we fully understand the implication of pushing too much into passive.
“That is why I believe actives will come back. There will probably be a regulatory and political framework to incentivise savings to go to Europe.”
Active ETF opportunity
Pierri said the growth of active ETFs could help “bridge the gap” between passive and active and added the group has a “high conviction” in the product.
“Active ETFs is a way to bridge the gap between passive and active and it is growing. It is going to present a significant opportunity for growth for European asset managers,” he said.
“We have a clear strategy which includes selective passive, meaning active ETF with ESG.”
It comes after ETF Stream revealed BNPP AM’s first active ESG ETFs in February, designed to actively implement ESG criteria rather than generating alpha.
However, the French asset manager said earlier this month it will look to expand its active ETF range to “alpha-generating” products.
Pierri added active management has one of the “biggest opportunities” in years with market disruption at country, industry and company level creating chances to outperform.
He also noted the changing market dynamics in a low interest rate environment have led to a “dramatic” decrease in research available on stocks.
“The amount of research available on stocks has gone down dramatically. There is a tipping point. If there is no longer research because the whole world has gone to passive, it will create opportunities for active management,” Pierri said.
“We are not far from the tipping point. When we invest in passive instruments, we invest in the economy of the past, but we need to invest in the future and that will be the fundamental driving force behind the comeback of active.”
