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True active management is about more than generating positive long-term returns after fees. It is about analyzing, comparing and selecting investments. It directs capital toward individual companies and plays a direct role in financing them through initial public offerings and capital increases.

Can Europe afford to lose this ability to select investments and allocate capital – particularly at a time when performance increasingly depends on making the right choices?

The Debate Is Not Black and White

The rise of passive investing has been built on a simple and compelling proposition: lower costs, greater transparency and performance that is supposedly difficult for active managers to beat.

But the comparison is more complicated than it appears.

The label «active» covers a wide range of investment approaches. Some managers build portfolios around genuine convictions, while others remain closely tied to an index and in practice operate much like benchmark-oriented strategies.

By grouping these very different approaches together, the asset management industry has helped reinforce the perception that active management as a whole fails to outperform its benchmarks.

Not Everything Labeled «Active» Is Truly Active

Once these strategies are separated, however, the picture changes.

Genuinely active management – where portfolios differ meaningfully from their benchmark – can generate positive outperformance after fees.

Active Share, which measures how far a portfolio deviates from its benchmark, provides one way of identifying that distinction. At around 70 percent, a threshold begins to emerge: funds with the highest degree of differentiation tend to outperform, by close to 0.7 percentage points annually.

The real question, therefore, is not simply whether active management can outperform. It is whether strategies that are barely active should continue to be classified as such.

Capital Allocation Is Also About Power

The debate goes well beyond investment performance. How capital is managed has direct consequences for corporate financing and the functioning of capital markets.

Passive strategies play only a limited role at some of the most important moments in a company’s financing cycle, including IPOs, capital increases and bond issuance.

Active managers, by contrast, select, finance and engage with companies. In doing so, they contribute to efficient capital allocation and support the broader market ecosystem through research, price discovery and dialogue with corporate management.

As more investment capital becomes tied to indices, these functions diminish.

Capital allocation becomes more mechanical and more concentrated. The nature of risk changes as well, potentially increasing herd behavior, procyclicality and vulnerability during periods of market stress.

But there is an even broader strategic dimension for Europe.

More than 80 percent of passive strategies are controlled by three US players. As a result, a growing share of the voting power associated with European savings is effectively exercised from outside the continent.

Europe continues to save, but those savings are becoming less directly connected to the financing of European companies. This shift in capital-allocation power weakens primary-market financing and increases Europe’s dependence on foreign institutions.

Can Europe sustainably manage its economy while encouraging capital-allocation power to migrate elsewhere?

Greater Transparency Is Needed

One reason active management has lost ground is that the term itself has never been defined precisely enough.

As long as genuinely differentiated portfolios and benchmark-oriented strategies are placed under the same “active” label, the debate will remain distorted.

Clarifying that definition is not merely a technical exercise. It is a matter of transparency for investors.

A clearer distinction is needed between genuinely active management and benchmark-oriented or semi-passive strategies. Measures such as Active Share and tracking error can help investors determine how far a portfolio actually differs from its index.

Without that transparency, active management will continue to be underutilized not only as a source of differentiated investment performance, but also as a mechanism for financing the European economy.

Can Europe Afford to Lose Active Management?

The question is therefore broader than whether active funds can beat an index.

Can Europe afford to give up a potential source of differentiated returns? Can it dispense with an important mechanism for financing its companies? And can it afford to relinquish an instrument of financial sovereignty?

The answer is no.

But active management needs a clearer definition. In a world where the allocation of capital has always been a strategic issue, clarity is not a luxury. It is essential.

Recent fund flows illustrate why the active-versus-passive debate cannot be reduced to a simple binary choice.

According to Morningstar data as of the end of July 2026, actively managed bond funds attracted net inflows of €132.2 billion since the beginning of the year, compared with €64.5 billion for passive products.

Equities tell the opposite story. Passive equity funds attracted €231 billion in Europe, while actively managed equity funds suffered net outflows of €25 billion.

Those diverging trends underline precisely why the debate over active and passive investing needs greater nuance.

Maxime Carmignac is CEO of Carmignac UK and the daughter of Carmignac founder Edouard Carmignac.

This article draws on the study «Active Management: A Source of Outperformance, European Financial Sovereignty and Investor Protection.»

The authors are Maxime Carmignac, CEO of Carmignac UK; Bertrand Merveille, Managing Director of BDL Capital Management; Anne-Sophie d’Andlau and Catherine Berjal, co-founders of CIAM; Philippe Lebeau, Chairman of Comgest S.A.; Marie Jacot, CEO of Edmond de Rothschild AM France; Sidney Oury, co-founder of IVO Capital Partners; and Romain Burnand, Chairman of Moneta Asset Management.

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