As the shift towards passive investing continues to reshape the asset management industry, active managers are exploring new strategies and product formats to maintain their edge. In an interview, Joseph Pinto, CEO of M&G Investments, outlined how the UK-based firm is adapting to the changing landscape.
M&G has a strong reputation as a high-conviction active manager. But Pinto acknowledges the pressure from the rise of passive funds. “Passive is pushing simple strategies, and those without exceptional investment performance, like we’ve been having across our active range over the last three and five years, can no longer justify being qualified as active managers,” he said.
To stay competitive, M&G is looking to launch active ETFs next year, blending quantitative and human-led investment processes. “We have a strategy called Maxima that uses an AI-led investment process for 70-80 percent of the portfolio,” Pinto explained. “This is a quant strategy with a five-year track record that could fit well in an ETF format.”
“We want to test where this segment of ‘active-lite’ fits and who the best customers are.”
The move towards active ETFs reflects a broader industry trend. Competitors like State Street and BNP Paribas have also been exploring this hybrid active-passive space. “It’s not just adding an investment product, but also looking at the wrapper and distribution channel,” he said. “We want to test where this segment of ‘active-lite’ fits and who the best customers are.”
Private assets as differentiator
Beyond public markets, M&G is also focusing on private assets as a differentiator. The firm manages 86 billion euro in private markets, including private credit, real estate and infrastructure. Pinto sees this as a key growth area, especially as European policymakers push to channel more funding to SMEs through capital markets.
“As an investor, you can’t ignore half of the investable universe. That’s why we need to consider private markets.”
“When you look at the size of the public and private markets globally, they are comparable,” Pinto said. “As an investor, you can’t ignore half of the investable universe. That’s why we need to consider private markets.”
However, Pinto struck a note of caution on the rapid growth of private markets. “There has already been some pressure on fees in the institutional space, starting from a higher base,” he said. “Regulation like the UK’s consumer duty will increase the focus on value assessment and protection for investors.”
M&G’s private markets push includes expanding distribution beyond its traditional institutional client base. In October 2023, the firm launched a private credit fund for the wholesale market in Luxembourg, seeded with 700 million euro from its insurance arm.
Training distributors
“We’re developing training for distributors, not just the end customers,” Pinto said. “We’re extremely cautious, because we have 4.6 million retail insurance clients that we need to protect as well.”
The Luxembourg launch reflects M&G’s broader ambitions in continental Europe. The firm has built a strong presence in the Benelux region, with over 10 billion euro in assets in the Netherlands and close to 3 billion euro in Belgium.
“The Netherlands is our biggest institutional market outside the UK,” Pinto said. “We’ve been very successful in distributing private markets, but also more public market strategies like fixed income and Impact equities.”
M&G’s Belgian business has also seen rapid growth, with over 400 million euro in net inflows in the first half. The firm said it continues to see strong momentum across equities, European credit and private assets. Pinto attributes this to the quality of the firm’s investment offering and distribution capabilities.
In pursuit of small boutiques
As M&G navigates these industry shifts, Pinto sees potential for further consolidation. The firm is actively pursuing small boutique acquisitions to expand its product range and distribution footprint, particularly in private markets.
“We’re looking at small firms, two or three at the moment,” Pinto said. “The criteria is a target that fits a product gap we have, and can leverage our access to long-term capital and distribution capabilities.”
Overall, Pinto’s message is one of cautious optimism. While passive investing continues to disrupt the industry, he believes active managers can still thrive by adapting their strategies and delivery models. And with Luxembourg’s growing prominence as a hub for alternative assets, M&G believes it is well-positioned to capitalise on these trends in continental Europe.