Many years ago I was sitting in a crowded city park at midday and observed birds hunting for crumbs that fell from people's lunches. What I noted was that the physically dominant pigeons took over the space forcing the sparrows aside. However, when a crumb fell to the ground, as all the pigeons moved toward it, the closest pigeon would posture and act territorially in that characteristic head-bobbing manner that pigeons have in order to block the other pigeon's access to the precious morsel of food. Meanwhile, a sparrow would fly in, take the crumb and fly off leaving the pigeon that thought it had secured the food looking stupid and confused. At that moment I thought to myself "the behaviour of those pigeons is like every large corporation. Large corporates (including fund managers) spend most of their time in some form of posturing and lose sight of their purpose and reason for being. By comparison, sparrows are dynamic, efficient and focused on their goal - get food."

Marshall McLuhan coined the phrase "The medium is the message". This concept is true not just in the media but also in business structure. I have observed in large fund managers that the structure and process of their organisations are detrimental to their primary objective. These structural impediments result in large funds tending toward mediocrity. How is this so? The hierarchy of reporting! Portfolio Managers report to CIOs who report to Investment Committees who report to CEOs who report to Boards who report to Regulators who report to Governments who like to look good (i.e. not look bad) in the public eye. It is this chain that reinforces a defensive mindset from the CIO upwards, with each level paring back on positioning for reasons of job preservation, which leads to uninspiring conformity across all managers. Why do they aim to conform? So they can call on the "But everyone was doing it" defense when things go wrong. This is poor investing, risk management & governance.

Smart-Beta, Factors & Alt-Risk Premia are supposedly a balance between active & passive investing. This is not true. It is, for the most part, the investment industry equivalent of observing the most minute aspect of religious doctrine whilst ignoring the large central tenets of a faith. The appropriate response to such a focus was given by Jesus to the religious leaders of His day:

Woe to you, scribes and Pharisees, you hypocrites! You pay tithes of mint, dill, and cumin, but you have disregarded the weightier matters of the Law: justice, mercy, and faithfulness. You should have practiced the latter, without neglecting the former. You blind guides! You strain out a gnat but swallow a camel. [Matthew 23:23]

These methods address the most minute aspects of portfolio construction while charging "active" fees. 'Smart' investing should benefit investors as much as managers.