Active Investing, Passive Hiring: Why Active Asset Managers Need to Rethink Their Talent Strategy

The active management industry is built on a simple promise: “Markets are inefficient. We can identify opportunities others miss. We can generate alpha.”

As a result, clients pay active managers a premium from day one, knowing their superior judgement and expertise will create superior outcomes. 

Yet there is a fascinating contradiction at the heart of the industry. While active managers ask clients to invest in a rigorous process, many approach their own hiring needs with the opposite mindset: a vacancy appears and the firm scrambles to fill it, usually by chasing the same obvious pool of talent everyone else is. 

In other words, they pursue an active investment philosophy while adopting a passive hiring strategy. 

My question is this: if you expect clients to invest in your expertise proactively, with the promise that doing so will produce stronger outcomes, why are you reluctant to apply that same ethos when searching for the people who will be responsible for delivering that promise?

Alpha comes from people 

To hire well, asset managers must pay respect to the fact that people are the firm’s greatest source of alpha. 

This is already well-known; I read a lot of annual reports from active investment managers, and they all speak about the importance of intellectual capital, investment expertise, culture and people. Clients are likewise told that investment performance is the product of exceptional teams making exceptional decisions. 

But that thinking seems to fall out the window during hiring discussions. Just as you wouldn’t merely accept that the market is efficient, and therefore halt any endeavours to find hidden value, nor should you assume that the best candidate will magically be there in the first list of names you look at. You need to research the talent market with the same level of seriousness you give to investment decisions. 

Active vs. passive talent investing

For many fund managers, contingent recruitment can feel like the easier, lower-commitment option: the recruiter carries the upfront risk, only getting paid when someone’s hired, and the process is faster because it focuses on active candidates already doing a similar job.

This is what I call passive talent investing. It feels quicker, financially safer, and easier to defend internally to the Board. But when your recruiter’s commercial incentive is to fill the vacancy quickly, you inevitably get weaker hires – ones that feel familiar and comfortable, sure, but not ones that will take your business to the height of its ambition. That’s because:

• You keep fishing in the same talent pool, which limits differentiated thinking 
• You reduce your competitive edge, with rivals accessing the same pool
• You optimise for filling roles, not building a stronger firm over time
• You accept what is already visible, so truly exceptional talent stays out of reach

You should hire the way you build portfolios: actively, by investing where others aren’t looking. Rather than asking: “Who has already done this exact role?” Ask: “Who has the highest probability of outperforming over the next five years?”

Rather than looking only at today’s market leaders, identify emerging talent before competitors recognise them. Rather than buying expensive, fully valued assets, invest in individuals whose trajectory is still accelerating. Rather than following consensus opinion, develop conviction through rigorous research and serious assessment across a wider pool. 

Isn’t that exactly what active managers tell clients they do every day?

Only the right kind of executive search will create alpha

Too often, what gets called executive search is treated as an exercise in sourcing candidates on a no-win, no-investment basis – otherwise known as contingent recruitment. 

Retained executive search works differently because the firm invests in the process from day one. A strong search partner maps the market properly, challenges the brief, and looks beyond the usual networks, spending time assessing people who may never appear in a competitor search. 

For active fund managers, that logic should feel familiar. Finding overlooked value takes research and conviction before the return appears. Retained search applies the same discipline to talent, helping you identify people your competitors may miss, and make a stronger hiring decision before the wider market reaches the same conclusion.

Getting ahead of industry changes

Another benefit of using a retained executive search partner is that they’re specialists, not generalists; they live and breathe your market, they know the unique challenges it breeds, and they anticipate industry changes, helping you ready your talent bench in advance.

Having that level of insight is more important than ever in today’s investment landscape, which is changing in unprecedented ways:

• AI is reshaping research
• Private markets continue to evolve
• Distribution models are changing
• Client expectations are different
• Technology is altering every aspect of investment operations

If, in the face of all this change, you’re still looking for the same profiles you hired ten years ago, you will end up building a team for a market that doesn’t exist anymore. 

The next generation of industry leaders will not look exactly like the previous generation. City of London research suggests AI could create productivity gains of up to 50% across UK financial and professional services by 2030, with asset management among the sectors analysed. To me, this highlights the need to identify people who can lead through that future.

Finding those people early is a search partner’s modus operandi; they have the networks you need to tap rarefied, passive talent pools, and they have the expertise to understand which capabilities your firm will need next.

If you want to build a leadership team for where the industry is heading, your hiring strategy has to look ahead, too.

A challenge to the industry

Active managers ask investors to believe that superior judgement deserves a premium. That same principle should apply to hiring.

If the people in your business are truly your greatest competitive advantage, which I believe they are, then finding them should command the same level of thought, research and conviction you apply elsewhere in the business.

The firms that will outperform over the next decade are unlikely to be those that simply hire who everyone else is hiring. They will be the firms that back exceptional people before they become the obvious choice.

In investing, that is called generating alpha. Perhaps it is time we started generating alpha in talent, too.

This is a topic I am very passionate about. Please feel free to contact me at [email protected] and we can schedule a call or meeting to discuss how you can improve the talent alpha in your business.