Welcome to the latest edition of At the Forefront: Fintech Conversations!
To learn more about this podcast and explore our episode archive, click here.
In this episode, Forefront Head of Content Sam Belden sits down with David Choate, Chief Operating Officer at CAPIS, to discuss the long-term implications of passive investing on public markets, capital formation and price discovery. Building on several recent op-eds published in Institutional Investor and Traders Magazine, Dave shares his perspective on how passive investing, tax policy and market structure changes are reshaping the role of active management across the financial ecosystem.
The conversation begins with a high-level look at the role active management plays in maintaining healthy capital markets. Dave argues that active management performs one of the most important functions in financial markets by allocating capital based on merit and fundamentals, while expressing concern that structural and regulatory trends are increasingly favoring passive strategies at the expense of active participation.
From there, the discussion explores how the rise of passive investing has reshaped public markets over the past several decades. Dave explains how the concentration of assets in index funds and ETFs has altered the incentives surrounding public listings and capital formation, particularly for smaller growth companies. The conversation also examines why more companies are choosing to remain private longer and what that shift could mean for the future of public markets.
Sam and Dave also discuss the relationship between active management, research and market infrastructure. David outlines how declining active assets under management reduce commission pools that historically funded sell-side research, creating additional pressure on the active management ecosystem. He also speaks to the role ETFs play in these dynamics and how current tax structures may unintentionally reinforce the shift toward passive investing. Drawing on arguments from his recent Traders Magazine op-ed, Dave explains how the tax treatment of ETFs versus mutual funds creates structural incentives that disadvantage active management and weaken the broader research ecosystem that supports merit-based capital allocation.
Finally, the conversation turns to what needs to change in order to preserve healthy public markets and restore support for active management. David highlights taxation, regulation and public opinion as three key areas that will shape the future of capital formation and argues that maintaining vibrant public markets will require a renewed focus on active participation, competition and long-term market resilience
For more conversations with fintech and capital markets leaders, explore the At the Forefront podcast archive or our YouTube channel.
If you’d like to learn more about CAPIS, visit their website here.
TLDR 1:25 – Why active management remains essential to healthy public markets 4:55 – How passive investing is reshaping capital formation and IPOs 9:00 – The relationship between active management, research and ETFs 15:10 – What needs to change to preserve market competition and price discovery