Private credit investing has seen exponential growth in recent years, fueled by structural shifts in financial markets and a growing demand for flexible, non-bank lending solutions. Private credit is no longer a niche – it’s a major force in the market.
It’s the showdown of the equities funds management world: not value vs. growth, but long-only versus long-short. Do long-only managers fight with one hand pinned behind their backs, as their long-short counterparts assert? We tested a random pair.
Market concentration, macro headwinds slam active managers in 2024
Heightened market concentration and US equity dominance posed significant headwinds, with most managers struggling to meet benchmark returns.
Frontier found that the median global active equity manager underperformed the MSCI All Country World Index (MSCI ACWI) by 4.6 percentage points, marking the worst relative return in over 20 years. The dominance of the ‘magnificent seven’ – that small group of technology stocks, propelled by artificial intelligence optimism, led to a tough year for active management in global equities.
For example, managers who chose not to own Nvidia in 2024 – as two-thirds of global active managers did not – saw 3.1 percentage points lopped from their performance from that decision alone. While the MSCI ACWI returned 17.5 per cent (in US dollar terms), the median return of the 2,647 stocks in the benchmark was under 1 per cent, highlighting the extreme concentration of market returns. The second half of the year was even more difficult, with only 26 per cent of managers outperforming the benchmark, compared to 39 per cent of managers that did so in the first six months of 2024.
“This year’s benchmark performance was driven by a small group of stocks, which posed a challenge for active managers,” says Brad Purkis, senior consultant at Frontier Advisors. “The two-thirds of global active managers who did not hold Nvidia faced significant difficulty in outperforming the broader market, and that’s just one of that group of seven dominant companies.”
Frontier found that quantitative managers stood out as a rare success story, benefiting from diversified portfolios and effective risk controls. Meanwhile, value managers experienced especially challenged outcomes over the year. Growth managers overall outperformed, although market conditions were only conducive to a select group of ‘high-growth’ managers, with even moderate growth managers failing to beat the benchmark.
“The results show how narrow market leadership and macroeconomic forces can deeply affect active management outcomes,” says Purkis. “Managers with diversified, systematic strategies fared better during this challenging period.”
In the Australian market, strong performance from the big four banks created challenges for active managers, many of whom were underweight in these companies. However, the underperformance of large resource stocks, such as BHP and Rio Tinto, alleviated some of the challenges, leaving the median Australian equity manager only slightly behind the benchmark for the year.
Emerging market managers also faced difficult conditions, underperforming the MSCI Emerging Markets Index by 0.7 percentage points for the year. Taiwan Semiconductor Manufacturing Company (TSMC), which notched a return of more than 90 per cent in 2024, posed particular challenges for managers holding underweight positions relative to its 10 per cent benchmark weight. Even an absolute weight of 5 per cent, half the benchmark weight, in TSMC would have dragged returns down by about 4 percentage points.
Emerging markets provided little relief for active managers, says Purkis, with TSMC’s dominance meaning that “underweight positions were difficult to overcome for many managers.”
Frontier’s data accords with other studies, for example, the S&P Indices Versus Active (SPIVA) Australian and global scorecards, which show persistently challenging market environments for active managers across developed equity markets, with the outperformance of mega caps resulting in a high proportion of index constituents beating their benchmarks.
As 2025 unfolds, investors and asset owners are cautiously hopeful for improved conditions for active management with the opening weeks of the year providing a very strong start for active investors in global equities. However, ongoing US equity dominance, concentrated markets and macroeconomic factors continue to influence the investment landscape.
