The landscape of active asset management is undergoing a significant transformation. After decades of favorable conditions characterized by robust asset growth and high fees, active managers now face intense pressure on their profit margins. The rise of passive investing has notably diminished revenue streams, while the expenses associated with generating alpha persist due to extensive teams, intricate data requirements, and substantial operational infrastructure.
In response to these challenges, many firms have attempted to reduce costs through conventional means. However, these measures often fail to counter the persistent decline in fees and sluggish capital inflows. As regulatory demands, cybersecurity concerns, and technological maintenance costs increase, companies find themselves squeezed between decreasing revenues and inflexible expenses.
Understanding the technological dilemma
While technology was envisioned as a solution to these issues, the reality has been mixed. Despite years of investment in artificial intelligence and automation, many organizations remain trapped in outdated systems that consume resources and complicate operations. A staggering portion of their technology budgets, often between 60% to 80%, is allocated merely to sustain existing infrastructures, leaving scant resources for true innovation.
Resistance to change
Even when advanced tools are rolled out, cultural resistance often hampers their effectiveness. Portfolio managers and analysts may view new technologies as a threat to their roles, fearing loss of control or relevance. For Chief Investment Officers (CIOs), the imperative is clear: success lies in fostering a cultural shift where AI is seen as a tool to augment human expertise rather than replace it. This approach allows teams to focus on the most valuable decisions that drive alpha.
Rethinking the investment framework
The opportunity cost of having highly skilled portfolio managers engaged in menial data collection rather than strategic judgment is steep. While the industry is rife with discussions about potential solutions, actionable and effective blueprints remain scarce. To break free from the cycle of high costs and diminishing alpha, asset managers must fundamentally rethink their investment processes.
This new paradigm involves constructing an efficient, scalable alpha factory that retains human expertise at its center. Drawing from over 20 years of experience managing institutional portfolios exceeding €1.6 billion in assets under management, I have developed and implemented a comprehensive model that addresses the root causes of high alpha costs.
A practical example
During a live trial in October 2025, this model identified a unique valuation discrepancy in the Japanese firm IHI Corporation that traditional screening methods overlooked. The alert triggered an immediate fundamental analysis of the company, and within hours, the portfolio manager confirmed the authenticity of the mispricing and executed a trade. This case exemplifies the potential of integrating human intelligence and AI to enhance alpha generation.
The new alpha factory design
This innovative framework is built on four key pillars, ensuring transparency and accountability in the collaboration between human judgment and machine intelligence. It empowers humans to lead the investment process, not merely as approvers at the end, but as architects of the entire portfolio.
Investor appetite for outperforming the market remains strong; however, willingness to pay hefty fees for underwhelming results has diminished. By effectively reducing the costs associated with alpha generation, active managers can once again present a compelling value proposition compared to passive alternatives.
Future directives for investment leaders
For investment leaders, particularly CIOs, the message is unequivocal: the path forward belongs to those who innovate their workflows rather than merely acquiring new technologies. The initial step involves piloting a process that enables efficient and profitable scaling of alpha generation.
In response to these challenges, many firms have attempted to reduce costs through conventional means. However, these measures often fail to counter the persistent decline in fees and sluggish capital inflows. As regulatory demands, cybersecurity concerns, and technological maintenance costs increase, companies find themselves squeezed between decreasing revenues and inflexible expenses.0
Maintaining a competitive edge
In response to these challenges, many firms have attempted to reduce costs through conventional means. However, these measures often fail to counter the persistent decline in fees and sluggish capital inflows. As regulatory demands, cybersecurity concerns, and technological maintenance costs increase, companies find themselves squeezed between decreasing revenues and inflexible expenses.1
In response to these challenges, many firms have attempted to reduce costs through conventional means. However, these measures often fail to counter the persistent decline in fees and sluggish capital inflows. As regulatory demands, cybersecurity concerns, and technological maintenance costs increase, companies find themselves squeezed between decreasing revenues and inflexible expenses.2