Active Equity Funds in Low-Growth Environments: The Accountability Imperative

In a macroeconomic landscape defined by tepid growth, inflationary uncertainty, and central bank normalization, active equity fund strategies face a dual challenge: navigating structural inefficiencies while proving their value through accountability. The past five years have underscored the fragility of traditional performance metrics and the growing need for nuanced evaluation frameworks. This analysis explores how manager accountability mechanisms-tenure, fee structures, and risk-adjusted performance metrics-shape long-term outcomes in low-growth environments, drawing on empirical insights from institutional investors and academic research.

The Struggle for Alpha in a Low-Growth Regime

Active equity funds have historically underperformed passive benchmarks in low-growth environments, a trend exacerbated by the 2020–2025 period marked by policy-driven volatility and market normalization. According to a report by JPMorgan, 94.1% of domestic active equity funds underperformed the S&P 1500 Composite Index over a 20-year span (2005–2024), with risk-adjusted underperformance reaching 97.3%. This underperformance is not merely a function of market conditions but reflects structural shifts, including the diminishing pool of uninformed investors and the professionalization of markets.

In such environments, active managers must differentiate themselves by isolating true alpha from returns generated by factor exposures. Traditional metrics like nominal returns fail to account for risk profiles, leading to misattributed performance. For instance, a fund outperforming its benchmark may simply be overexposed to high-beta or growth stocks, which carry inherent risks according to Resonanz Capital. This underscores the need for beta-adjusted and factor-adjusted returns, which provide a clearer picture of a manager's skill.

Manager Accountability: Tenure, Fees, and Long-Term Incentives

Manager tenure and fee structures are critical determinants of long-term performance. Studies indicate that longer tenure correlates with improved fund outcomes, as experienced managers develop deeper market insights and avoid short-termism. However, the alignment of performance evaluation periods with full market cycles (7–10 years) remains elusive. A 2025 analysis by Evidence Investor found that active funds achieved a success rate of only 29% during periods of heightened volatility, such as the Trump-era policy shifts. This suggests that institutional investors must extend evaluation horizons to capture the true value of active management.

Fee structures further complicate accountability. High-fee active funds often underperform their low-cost counterparts, particularly in low-growth markets where alpha generation is scarce as research shows. Vanguard's approach to active management-prioritizing cost efficiency, long-term orientation, and access to top-tier talent-offers a counterexample. By minimizing fees and aligning incentives with long-term goals, Vanguard has achieved consistent outperformance, a strategy that becomes increasingly vital in environments where passive alternatives dominate according to Vanguard's own analysis.

Risk-Adjusted Metrics: Beyond Nominal Returns

The relevance of risk-adjusted metrics cannot be overstated. Sharpe ratios and factor-adjusted returns help investors distinguish between skill-based alpha and returns derived from market exposure. A 2024 study by Resonanz Capital highlights that traditional performance measures often overemphasize nominal returns, leading to misallocation of capital. For example, during the 2020 pandemic crash, high-sustainable funds (both active and passive) outperformed low-sustainable counterparts, demonstrating the value of downside protection in volatile markets according to MDPI research.

Moreover, multi-strategy hedge funds and global macro strategies illustrate the importance of diversification. These approaches, which dynamically allocate capital across asset classes, have historically outperformed during downturns by capitalizing on dislocations in interest rates, currencies, and commodities as BlackRock reports. Their low correlation with traditional equity strategies and positive skewness make them attractive for loss-averse investors in low-growth environments according to BlackRock analysis.

The Path Forward: Accountability and Adaptation

To thrive in a low-growth regime, active equity strategies must prioritize accountability through three pillars:
1. Extended Evaluation Periods: Align performance assessments with multi-year market cycles to reward long-term skill.
2. Fee Transparency: Adopt fee structures that penalize underperformance and reward risk-adjusted outcomes.
3. Factor-Aware Portfolios: Use beta-adjusted and factor-adjusted returns to isolate true alpha.

Institutional allocators must also refine risk budgets and adopt outcome-oriented frameworks. As markets like Vietnam demonstrate, active management can exploit inefficiencies and governance gaps to capture growth while managing downside risks according to Aquis Capital. However, this requires intentional diversification and ongoing monitoring to ensure alignment with macroeconomic realities.

Conclusion

The 2020–2025 period has exposed the limitations of active equity funds in low-growth environments, but it has also highlighted pathways for improvement. By redefining accountability through tenure, fee structures, and risk-adjusted metrics, investors can better navigate the complexities of a shifting macroeconomic landscape. The future of active management lies not in chasing nominal returns but in delivering resilient, skill-based alpha-a goal achievable only through rigorous accountability and strategic adaptation.