We investigate why investors may be willing to participate in active management, notwithstanding that the average manager is likely to generate negative alpha after fees. We model the alpha an investor expects from a dynamic strategy of investing in a portfolio of active investment managers, and...

We interview professional institutional investors to learn how they choose between active and passive management, select active equity managers and construct multi-manager portfolios. We find that many of the aspects emphasized in the fund management literature, such as returns generated by the...