“If a specific active manager does poorly, underperforms their index, and is in the bottom quartile of peers, these allocators do take another look at that and say, ‘is this what we want for our strategy?’ ” said Paul Olmsted, a Morningstar analyst. “Did the manager make good decisions? Did they make bad decisions?”

Active managers say they won’t succumb to the same vicious cycle that hurt and sometimes eliminated their counterparts in equities. BlackRock, for one, has netted nearly $91 billion of new cash to its active fixed-income funds from the start of 2022 through the end of the third quarter.

“We just have to put up good returns,” said Dan Ivascyn, the 54-year-old chief investment officer of Pacific Investment Management Co. Now is the time for active managers to prove their worth, he said during a November interview in his Newport Beach, California office. “If you generate value versus passive alternatives, flows are going to come in.”

Ivascyn’s $132 billion Pimco Income Fund, which he has helmed since inception in 2007, posted an 8.6% return this year through Dec. 14, among the industry’s best.

Firms are developing new investment strategies using technologies, including artificial intelligence, to find factors driving markets that can beat the benchmarks, according to Andrea DiCenso, who oversees bond portfolios at active-manager Loomis, Sayles & Co.

“The case for passive in my mind is not a very strong one in fixed income,” George Walker, chief executive officer of Neuberger Berman, said in an interview. “Passive has outperformed in certain parts of the U.S. large-cap equity markets, but I think over time people will become more discerning on the best use.”

Neuberger Berman had $167 billion in actively managed public fixed-income investments at the end of September and had net inflows of about $2 billion in the third quarter, according to the company.

Western Asset has benefited from the recent rebound in fixed income, with its Core Plus bond fund rising 6.2% in the past month through Dec. 14. That’s good enough to push it back into positive territory for the year and beat almost all its peers for performance, ranking in the 99th percentile.

“We had a poor call in 2022 on inflation and the Fed for sure, but it isn’t as if we’re broken or a different firm,” said Mark Lindbloom, a Western Asset portfolio manager. He’s expecting to keep clients and see more inflows. “We’re starting to see those inquiries pick up quite a bit,” he said.

Those inflows matter a lot to the financial fortunes of not only clients but also the money managers themselves and their publicly traded firms. Bonuses have been cut, and at the bottom quartile of firms, managers saw a 20% decline in overall compensation in 2022 from 2021, according to Casey Quirk.

“If an asset manager doesn’t deliver robust inflows this quarter, it will be disappointing and likely reverse most of the recent gains that asset manager share prices have experienced,” said Kyle Sanders, senior research analyst at Edward Jones. 

This article was provided by Bloomberg News.

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