Why the end of cheap money and a fragmenting world order are reviving the case for active investing — and why technology, at last, can deliver it.

Two years ago, in Navigating the Inevitable, Viquo wrote that “economic history teaches us that periods of prolonged prosperity inevitably give way to instability, making it clear that the current contentment should be considered temporary.” Rather than forecast the date of a reckoning, we argued for a posture: “instead of trying to predict the exact timing of a downturn, it is wiser to focus on preparedness.” We were describing an industry lulled by fifteen years of rising markets into mistaking a temporary calm for the permanent order of things.

What we framed then as a coming downturn now looks like something larger. Not a turn in the cycle, but a change in the climate — and with it, the return of the one capacity the passive era had rendered almost worthless: judgement.

An anomaly mistaken for the weather

“Interest rates set at 2 per cent or less fuel speculative manias, drive savers to make risky investments, encourage bad lending and weaken the financial system.” — Edward Chancellor, The Price of Time (2022)

The case begins with a fact that is easy to forget. For the better part of five thousand years, lenders have charged borrowers for the use of money, and across that long record the price of money has rarely fallen as low as it did in the decade after 2009. Plotted across the centuries, the era most of today’s investors regard as ordinary reveals itself as an aberration: an interlude of almost-free money with few precedents in the recorded history of finance. It was not experienced as an anomaly. It was experienced as the weather — the permanent climate within which every modern theory of investing was formed.

Almost everything the industry now takes for granted is a product of that interlude. When money is free and a rising tide lifts every asset together, the rational thing to do is to own the tide itself. Buy the index, pay as little as possible, and let the current carry you. Discrimination between one company and another — the slow, expensive work of judgement — becomes a cost without a reward. This is the logic that built the passive era, in which more than half of all long-term assets in the United States now sit in funds that, by design, never ask whether a company is good or bad, only whether it is large.

The machine that rewards size

“Each price-agnostic dollar … causes, on average, the largest stocks to rise more and the smallest stocks to rise less.” — Mike Green, Simplify Asset Management

That logic is self-reinforcing in a way easy to miss, and Viquo described its mechanics two years ago: the rise of passive investing, we wrote, “created a feedback loop where passive investments lead to capital consolidation among a select few high-profile firms, potentially inflating their stock prices.” Money flowing into index funds is, by construction, price-insensitive. It buys the biggest companies in proportion to their size, regardless of value, and — because a cap-weighted flow lands hardest on the largest, most volatile securities — it pushes precisely those names up the most, increasing their weight and drawing in more money still.

Mike Green, drawing on the market-impact research of Jean-Philippe Bouchaud, has shown how completely this inverts the old order. For decades the most volatile large-cap stocks tended to underperform: investors overpaid for their embedded leverage, a pattern AQR christened “betting against beta.” In a market dominated by passive flow, the relationship reverses. The very stocks that ought to be too expensive become the ones the flow inflates most, and so they outperform — not because they are better businesses, but because they are bigger magnets for price-insensitive money. What looks like a premium for size is, on closer inspection, a premium for flow.

Active managers who decline to own the most expensive companies underperform the index they are measured against, lose clients, and are forced to sell — and much of what they sell is bought, once again, by the passive machine. The result is a market that rises mechanically and rewards size over substance, in which price discovery, the very function markets exist to perform, quietly atrophies.

A machine like this can run for a long time, and it has — longer than its critics expected, and quite possibly for years yet. But duration is not the same as solidity. The automatic bid that lifts the market was built on the monthly pay of people in work, flowing without a second thought into retirement accounts that buy the index. That foundation is changing character. As the baby-boom generation moves from accumulating financial assets to living off them, the steady contribution flow has begun to soften — and what has replaced it is more revealing than reassuring. The slack has been taken up by discretionary money chasing a market that “only goes up”, and by systematic strategies — trend-followers and volatility-control funds — that buy precisely when realised volatility is low and retreat when it rises. Mike Green, whose work first mapped the passive bid, does not expect it to reverse outright before the 2030s. But a bid increasingly composed of momentum-chasers and volatility-sensitive machines is not a sturdier structure than a payroll-funded one. It is a more reflexive and more fragile one — primed to amplify a change in the weather rather than withstand it. The machine does not require a catastrophe to falter. It needs only the volatility regime to change.

The weather turns

And the weather is changing — not because of any single event, but because the conditions that produced the anomaly are themselves dissolving. These are not the ordinary oscillations of a market cycle. They are deeper, slower, and far harder to reverse: structural shifts in money, in geopolitics, and in demography, already embedded in the global economy. Three of them matter most.

The first is the exhaustion of the model that made money free. For four decades, falling interest rates and an integrating world economy pulled inflation steadily downward, and central banks could answer every crisis by lowering the price of money further. That road has reached its end. Debt has grown too large to service at high real rates, and the burden of managing it is passing from central banks to governments — from monetary policy to fiscal policy, from the discipline of disinflation to the temptation of inflation. A growing body of macro analysis argues that the defining feature of the coming era will be a quiet financial repression: governments steering capital toward their own priorities and tolerating inflation as the least painful way to erode debts they cannot otherwise repay. Whatever the name, the direction is the same. The long tailwind of disinflation has become a headwind, and the price of money is normalising upward toward its long-run mean.

“Financial repression means stealing money from savers and old people slowly.” — Russell Napier, interview with The Market NZZ (2021)

The second force is geopolitical, and it reinforces the first. The era of free money was also the era of a single, integrated world: one dominant power, open borders, supply chains optimised across the planet for cost above all else. That world is fragmenting into a multipolar one, in which great powers compete openly, supply chains are rebuilt for resilience rather than efficiency, and finance itself has become an instrument of statecraft — sanctions, frozen reserves, the deliberate exclusion of rivals from the system. When the plumbing of money is turned into a weapon, those outside the inner circle begin to seek assets no government can freeze or print, which is why the oldest neutral reserve of all — gold — is returning, quietly, to the centre of the monetary conversation. A fragmenting world is a more inflationary one, and a far less uniform one. It produces winners and losers — across regions, industries, and individual companies — on a scale the globalised decades did not.

The third force is the slowest and the most certain: the ageing of the developed world. As populations grow older, the workforce shrinks, productivity comes under strain, and the priorities of capital tilt away from speculative growth toward preservation, income, and the certainty of real cash flows. Labour becomes scarce and expensive — which places an unprecedented premium on systems that can codify expertise and multiply the output of skilled people. The same demographic gravity that strains pensions and public finances is, at root, an argument for automating expert work rather than hiring more of it.

The return of dispersion

These forces should express themselves — and are beginning to — as a rotation. The early signs point to capital moving out of the United States toward markets long overlooked, and out of richly valued, almost ethereal technology stories toward companies whose worth is anchored in cash generation and the material economy. If the forces are as structural as they appear, the era in which everything rose together — and owning everything was therefore enough — is giving way to one in which it matters intensely what you own, and where.

This is dispersion — and dispersion is the oxygen of active management.

The orthodox objection here is owed to William Sharpe, and within its own terms it cannot be beaten. In aggregate, after costs, the average actively managed dollar must trail the average passive one, for the simple reason that together they are the market: the index takes the market’s return less a sliver of fees, so the active crowd, taken as a crowd, must take the same return less a larger fee. The arithmetic does not bend.

But it constrains the average manager, and no investor was ever asked to hold the average. It says nothing about whether a chosen manager can win, and nothing about dispersion — which is exactly what decides how much that choosing is worth. When the largest stocks rise together as a block, the gap between a good decision and a poor one is narrow, and skill, however genuine, has little surface to act on. Let returns scatter — across smaller companies, across the less-indexed and less-efficient corners of the world, through stretches of real volatility — and the distance between the best and the worst widens, and the reward for judgement widens with it.

There is a further irony in it. Much of the outperformance that made the index look unbeatable was never a verdict on the businesses inside it; it was the flows premium described above — the mechanical reward for being large in a market dominated by price-insensitive money. A premium manufactured by flow unwinds when the flow does. As it fades, what returns is not merely volatility but discrimination: the conditions under which knowing one company from another is worth something again.

The long winter of active management was never a verdict on judgement. It was a verdict on a climate: a decade in which costless money compressed dispersion, lifted the index as one body, and left selection with almost nothing to do. That climate is breaking.

The cost of judgement

Knowing that judgement will matter again, however, says nothing about how to produce it at scale — and here the active industry has long been its own obstacle. It is fragmented, expensive, and slow, built on a method of analysis that has scarcely changed in half a century: skilled people reading documents one at a time. The cost and the human limits of that method are the reason judgement has always been an artisanal product — available reliably only to the largest institutions, and seldom at a price that justified what it delivered.

What is changing is not the case for judgement but the cost of producing it. Two technologies have matured at the same moment, and between them they remake the act of investing from opposite ends. Artificial intelligence can now carry out genuine analytical reasoning — the reading, the modelling, the synthesis of unbounded information into a specific view — tirelessly and at scale. And the machinery of ownership and settlement, all but unchanged for generations, is being rebuilt on programmable foundations that embed trust directly in code rather than reconciling it through a chain of intermediaries. The one lowers the cost of reasoning; the other lowers the cost of trust. For the first time, the discipline that separates a sound investment from a poor one need not remain artisanal: it can be applied with consistency across hundreds of decisions at once, at a fraction of the cost that long confined it to the few.

That is the development that matters. It is why the return of active management is not a nostalgic hope for a lost craft, but the early shape of a new one.

What we are, and are not, claiming

Let us be precise about the claim, and about its limits.

The strongest objection is not that judgement fails to matter, but that the forces above could break the other way. The same debt and the same ageing we read as inflationary can equally suppress demand and drag growth and prices down; and artificial intelligence, whatever it does to the cost of analysis, is itself a deflationary force — a supply shock that makes labour cheaper and output more abundant. On the most optimistic reading, a wave of AI-driven productivity lifts growth enough to outrun the deficits altogether, and the spectre of financial repression never materialises. We take that case seriously. But even its proponents tend to price a meaningful probability that it does not arrive — that AI automates without augmenting, and the fiscal and monetary pressures return with force. The disinflationary path is possible; the inflationary one is, on the balance of debt, demography and political incentive, the more durable bet.

And our argument does not, in the end, rest on which way the scales finally tip. This is not a prediction that markets will crash on a particular date; no one can know that, and arranging one’s affairs around a forecast is a confession of weakness dressed up as conviction. The claim is more durable: that the anomaly of the last fifteen years is ending, that its ending restores the value of judgement, and that the cost of producing judgement has — for the first time — begun to fall. Whether the next decade proves inflationary or deflationary, it will not be uniform. It will reward discrimination. And to build for an inevitability before it arrives is not to be early in the sense of being wrong.

To build for an inevitability before it arrives is not to be early. It is to be prepared.

The cheap-money tide is going out. The fractured world is rewarding discrimination again. And the cost of judgement, at last, has begun to fall. Two years ago, Viquo wrote that the moment was coming. The conditions, now, are arriving.

Sources for quoted material

  • Edward Chancellor, The Price of Time: The Real Story of Interest (Allen Lane, 2022).
  • Mike Green, Chief Strategist, Simplify Asset Management — on passive flows and the Bouchaud market-impact framework; Excess Returns Weekly Wrap (14 June 2026) and interview, ETF Stream (2025).
  • Russell Napier, “We Are Entering a Time of Financial Repression,” interview, The Market NZZ (2021).

This article represents the views of the author and is provided for information and discussion purposes only. It does not constitute investment advice or an offer to buy or sell any security.