Core Viewpoint - The rapid development of passive investment in China is reshaping the ecosystem of active and passive investment in the public fund industry, especially as active stock products struggle to outperform indices. The article explores the impact of passive investment on the market and the active management industry, providing insights and analyses on several core issues [1]. Group 1: Trends in Passive Investment - The domestic passive investment market has flourished since 2010, with the number of passive stock products increasing from fewer than 10 to over 2,000. By the end of Q4 2024, the scale of passive stock products reached 3.54 trillion yuan, a year-on-year growth of 241% [3][10]. - In the U.S., passive investment has matured, with passive stock products accounting for 61% of all stock products by Q4 2024, and total passive product scale reaching 16.2 trillion USD [15][18]. Group 2: Reasons for the Rise of Index Investment - The emergence of index investment is driven by the differences in active investment capabilities and investor awareness. Factors include the zero-sum nature of alpha returns, differences in investor abilities, and the realization by weaker investors of their disadvantages in alpha competition [4][29]. - The cost-effectiveness of passive investment compared to active management has led many investors, especially individuals, to shift towards index investment [32]. Group 3: Impact of Passive Investment on Active Management - The increasing scale of passive investment raises questions about the necessity of active management. However, the conclusion is that active management is needed more than ever, as passive investment sacrifices alpha pricing efficiency while enhancing beta pricing efficiency [5][41]. - As passive investment grows, the demand for effective alpha pricing from active management increases, creating a dynamic balance between active and passive investment [45][46]. Group 4: Evolution of Active Management Industry - The rise of passive investment necessitates that active managers demonstrate their ability to generate excess returns, leading to a greater emphasis on performance benchmarks. Investors will likely compare active funds against clear performance standards [58][59]. - The competitive landscape for active managers will become more transparent, making it easier for investors to identify high-performing funds and leading to a clearer distinction between successful and unsuccessful products [62][68].