The landscape of active asset management is undergoing a significant transformation, facing unprecedented challenges from various directions. Traditionally characterized by high fees and an expanding asset base, the industry now grapples with diminishing revenues as passive investing gains traction. This shift has sparked a critical reassessment of operational strategies, particularly regarding cost management and efficiency.
Compounding these difficulties, the demand for generating alpha—the excess return above a benchmark—continues to rise, yet the costs associated with achieving it remain stubbornly elevated.
The complexities of maintaining large teams, navigating regulatory landscapes, and investing in technology only add to the financial strain. A new battleground has emerged, where the focus has shifted from performance alone to the cost of alpha.
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Challenges in the current asset management environment
Many firms have attempted to reduce costs through conventional means, but these efforts often fall short of addressing the ongoing pressure on margins. With added challenges like cybersecurity, regulatory compliance, and the necessity of technology upgrades, asset managers find themselves in a difficult position, facing both declining fees and rigid operational costs.
The technological paradox
While technology was once heralded as a solution, in many cases, it has complicated matters further. Significant investments in artificial intelligence and automation have yielded minimal reductions in expenses, as many organizations remain bogged down by outdated systems. These legacy architectures often consume a significant portion of technology budgets—between 60% and 80%—leaving scant resources for innovation.
Furthermore, when new tools are introduced, resistance from personnel can hinder their effectiveness. Portfolio managers and analysts may hesitate to embrace AI-driven solutions, fearing a loss of control or job security. This highlights a critical aspect of the transition: the need for a cultural shift.
Reimagining the investment process
For Chief Investment Officers (CIOs) and industry leaders, the path to success lies in fostering a culture that encourages human-AI collaboration. The key is to empower experts rather than replace them, enabling teams to concentrate on high-value decision-making instead of tedious data collection. This shift enhances operational efficiency and optimizes the use of human expertise in generating alpha.
Building a new alpha factory
Addressing these challenges requires a reimagined investment process—a new kind of alpha factory that is streamlined and scalable while retaining human insight at its core. Drawing from over two decades of experience managing institutional portfolios valued at over €1.6 billion, a comprehensive blueprint has been developed to cut costs associated with alpha generation by tackling underlying inefficiencies.
An illustrative example occurred during a live trial in October 2025, where the model detected a significant valuation discrepancy in the Japanese firm IHI Corporation that a traditional screening method overlooked. This alert prompted a rapid examination of the company’s fundamentals, leading the portfolio manager to identify a genuine mispricing and take action. Such instances underscore the potential of integrating human judgment with AI capabilities.
Strategies for sustainable alpha generation
The framework for this new alpha factory is built upon four pillars that create a transparent and auditable system. This structure delineates the roles of human expertise and machine intelligence, ensuring that humans are not merely validators at the end of the process but architects who shape the entire investment strategy.
Investor appetite for outperforming the market remains strong; however, they are reluctant to pay high fees for subpar outcomes. By significantly reducing the costs associated with generating alpha, active managers can once again provide attractive value propositions compared to passive investment alternatives.
Compounding these difficulties, the demand for generating alpha—the excess return above a benchmark—continues to rise, yet the costs associated with achieving it remain stubbornly elevated. The complexities of maintaining large teams, navigating regulatory landscapes, and investing in technology only add to the financial strain. A new battleground has emerged, where the focus has shifted from performance alone to the cost of alpha.0
Compounding these difficulties, the demand for generating alpha—the excess return above a benchmark—continues to rise, yet the costs associated with achieving it remain stubbornly elevated. The complexities of maintaining large teams, navigating regulatory landscapes, and investing in technology only add to the financial strain. A new battleground has emerged, where the focus has shifted from performance alone to the cost of alpha.1
Compounding these difficulties, the demand for generating alpha—the excess return above a benchmark—continues to rise, yet the costs associated with achieving it remain stubbornly elevated. The complexities of maintaining large teams, navigating regulatory landscapes, and investing in technology only add to the financial strain. A new battleground has emerged, where the focus has shifted from performance alone to the cost of alpha.2
Compounding these difficulties, the demand for generating alpha—the excess return above a benchmark—continues to rise, yet the costs associated with achieving it remain stubbornly elevated. The complexities of maintaining large teams, navigating regulatory landscapes, and investing in technology only add to the financial strain. A new battleground has emerged, where the focus has shifted from performance alone to the cost of alpha.3
Compounding these difficulties, the demand for generating alpha—the excess return above a benchmark—continues to rise, yet the costs associated with achieving it remain stubbornly elevated. The complexities of maintaining large teams, navigating regulatory landscapes, and investing in technology only add to the financial strain. A new battleground has emerged, where the focus has shifted from performance alone to the cost of alpha.4
