The landscape of active asset management is undergoing a profound transformation. After a period marked by high fees and increasing assets under management, this sector now faces intense pressure on profit margins. The rise of passive investing has significantly reduced revenue streams, while costs associated with generating alpha—the excess return relative to a benchmark—continue to escalate due to the need for extensive teams, intricate data analytics, and robust infrastructure.
Firms are attempting to cope with this financial strain by implementing traditional cost-cutting measures.
However, these efforts often fall short as they struggle to keep pace with the relentless decline in fees and subdued investment inflows. Additionally, the mounting burdens of regulatory compliance, cybersecurity threats, and ongoing technology maintenance further complicate the situation, resulting in a structural dilemma where decreasing fees clash with rising operational costs.
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The role of technology in asset management
Technology was once heralded as the solution to these challenges, yet it has frequently exacerbated the situation. Companies have invested heavily in advancements in artificial intelligence and automation, but many remain ensnared in outdated systems that drain valuable resources and complicate operations. Notably, a substantial portion of technology budgets—often ranging from 60% to 80%—is allocated merely to sustaining existing infrastructure, leaving little room for genuine innovation.
Resistance to change
Even when modern technological tools are implemented, resistance from personnel can limit their effectiveness. Portfolio managers and analysts may fear that these innovations could undermine their control or threaten their job security, hindering the integration of new processes. Therefore, for Chief Investment Officers (CIOs), the true challenge lies in fostering a cultural shift: success is achieved when AI is utilized to enhance human expertise, rather than replace it, allowing teams to concentrate on decisions that generate the most value.
Reimagining the investment process
There is a significant opportunity cost when highly skilled portfolio managers are bogged down by manual data collection instead of engaging in high-level analysis and decision-making. The conversation within the industry often revolves around potential solutions, yet actionable frameworks are scarce. How can asset managers liberate themselves from the pressures of fees and costs, produce sustainable alpha, and move away from outdated practices while bringing their teams along?
The answer lies in rethinking the investment process to create a new model of alpha generation—one that is both efficient and scalable, while still valuing human expertise. Drawing from over two decades of experience in managing institutional portfolios and developing Human+AI investment methodologies, a comprehensive blueprint has been developed aimed at reducing the costs associated with alpha generation by addressing core challenges.
A practical example
For instance, during a live testing phase in early October 2025, this model identified an unusual pricing discrepancy involving IHI Corporation, a Japanese firm. Traditional screening methods had overlooked this valuation misalignment. The alert prompted an immediate examination of the company’s fundamentals. Within hours, the portfolio manager confirmed the legitimacy of the mispricing and took action to invest, demonstrating the potential impact of integrating human judgment with AI capabilities in real-time.
The new alpha factory
This innovative investment framework is structured around four essential pillars, providing transparency and accountability. It clearly delineates the collaboration between human insights and machine intelligence, ensuring that human experts play a pivotal role—not merely as a final checkpoint, but as the architects of the entire investment strategy.
While investors remain eager to outperform the market, their willingness to incur high fees for subpar results has diminished. By significantly lowering the cost of producing alpha, active managers can once again present attractive alternatives to passive investment options. For investment leaders, particularly CIOs, the directive is straightforward: the future will favor those who refine their operational workflows rather than merely adopting new technologies.
Achieving efficiency without compromising performance
Importantly, cost reductions should not compromise performance. When skilled professionals are unburdened from tedious data tasks, they can devote their efforts to the fundamental drivers of alpha generation. The outcome is clear: comparable or enhanced alpha generation at a fraction of the previous cost. Initial outcomes from live portfolio applications of this model indicate that it is possible to achieve competitive performance alongside a more sustainable cost structure without necessitating an increase in workforce or technology expenditures.
Firms are attempting to cope with this financial strain by implementing traditional cost-cutting measures. However, these efforts often fall short as they struggle to keep pace with the relentless decline in fees and subdued investment inflows. Additionally, the mounting burdens of regulatory compliance, cybersecurity threats, and ongoing technology maintenance further complicate the situation, resulting in a structural dilemma where decreasing fees clash with rising operational costs.0
