Fifteen years of prosperity and passive dominance have inflated valuations and seeded systemic fragility — the case for rotating toward affordable alpha via overlooked small and mid-size active funds before the cycle turns.
Today’s investors and asset managers are enjoying a flourishing market, having experienced fifteen years of near-uninterrupted prosperity. But economic history teaches that prolonged prosperity gives way to instability; the present contentment should be treated as temporary. Rather than trying to predict the exact timing of a downturn, it is wiser to focus on preparedness. By leveraging technology and data, Viquo’s early aim was to give asset managers not only a way to prepare for the next downturn, but a way to capitalise on it — and to be ready for the next, technology-driven generation of the industry.
Passive investment and the rise of affordable Beta
By 2024, passive investing represented over half of US long-term assets — driving down fees, reshaping adviser incentives, and feeding a cycle in which passive inflows concentrate capital among a few large firms while value managers underperform and are forced to sell. That same dynamic is reinforced by ranking practices that systematically favour large funds over smaller ones. We set out the distortion in full in Unlocking the Active vs Passive Debate, and the evidence for the ranking bias in Viquo 100; the point here is what follows from it.
Because over the last decade markets have performed exceptionally well, index funds became an affordable and seemingly safe entry point, fostering a sense of contentment among investors and managers alike. As history repeatedly shows, that contentment is fleeting. Conditions change, and the stability we have enjoyed will eventually give way to instability. Preparing for that inevitability is crucial for long-term success.
Everything is not going to be okay
Ultra-low interest rates inflated asset prices, making equities appear cheap relative to other investments despite being historically expensive. With borrowing costs at historic lows, investors took on more risk, lifting valuations — especially in tech. This era of risk-taking fostered a preference for passive strategies, which delivered satisfactory returns by simply following the market.
But such conditions do not last. Five millennia of interest rates underscore the transient nature of low rates; as rates rise, the equilibrium is disrupted, impacting asset prices and strategies alike. A century of economic activity, likewise, highlights the periodic nature of downturns. Current conditions seem favourable, but the cycle will turn — and that calls for a more proactive approach.
Switching to affordable Alpha
As markets become more volatile and the potential for downturns grows, there is renewed recognition of the value of active management. Active managers can navigate inefficiencies and make strategic decisions passive funds cannot. Yet the active sector remains fragmented and costly. In response, large players are adapting — acquiring smaller managers and deploying technology to introduce more efficient products and distribution, and so retain pricing authority.
BNY Mellon, for instance, has invested heavily in data and AI to enhance fund distribution and customise active products, standing up a dedicated digital R&D effort in 2023. Even the largest passive investors are shifting gears: BlackRock’s research emphasises the importance of active strategies amid volatility, and in early 2024 Vanguard introduced several actively managed equity funds in response to investor demand and in anticipation of a turn in the cycle. Yet one space remained largely untouched, awaiting a solution to release its value: actively managed small and mid-size funds with AUM under $1 billion.
The opportunity
Viquo’s early model addressed exactly that gap: a digital platform for HNWIs and small family offices focused on small to mid-size actively managed funds under $1 billion in AUM — funds with the potential for higher returns and resilience in downturns, but which struggle with visibility and access due to high distribution costs and thin coverage in the major databases.
The idea was to unify these top-performing funds into a single, scalable offering, delivered through a modular platform that could integrate into the infrastructure of larger institutions — enhancing discovery, due diligence, and access for investors, while negotiating lower fees with managers and optimising operations through technology. It was the first, exploratory expression of a conviction that has run through Viquo ever since: that the overlooked long tail of active management is where genuine, affordable alpha still lives, and that technology is the way to reach it.
The research underpinning this case — the systematic under-rating of smaller active funds, and the evidence for active management’s edge — is set out in the two boxes accompanying Viquo 100 (2024).
Where this leads — This piece sits alongside Unlocking the Active vs Passive Debate and Viquo 100 (both 2024) as the origin of Viquo’s thinking. Its call to prepare for the turn of the cycle is taken up, at macro scale, in The Great Dislocation (2025); and the mature form of the active-management argument is The Return of Judgement (2026).
Viquo Insights presents the editorial views of the author and the firm’s ongoing, exploratory thinking. It is provided for information and discussion only, and is not investment advice, nor an offer or solicitation to buy or sell any security or to adopt any investment strategy. You should do your own research, and we would always be very happy to know what you think, what you find, and how we can learn together.