Monday, November 24, 2014

$600 Billion - for What, Exactly?

A new report from the Center for Applied Research, a think tank associated with State Street Corporation, estimates that investment management industry annual fee revenue from active management is $600 billion.  The estimate is derived from a Boston Consulting Group report and based on estimates of world-wide assets under active management.

In a 2008 post on this blog I noted a John Bogle-authored book's reference to $300 billion as the amount investors pay annually in investment fees and costs.  The differences, I suppose, are due to the smaller amount being a domestic-only amount and perhaps ensuing years of growth and inflation.

The active investment management industry as a whole is a zero-sum game, gross of fees.  Mathematically, that must be.  And so it is difficult to disagree with a statement that the net contribution to society resulting from these fees, however estimated, is approximately zero.  (Well, unless one includes the benefits of "price discovery," which is the setting of market prices based on trading by active investment managers.)

To put $600 billion in perspective, according to the National Priorities Project the fiscal 2015 budget for the U.S. Department of Defense is $555 billion.

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