Definition of active management

The terms active and passive management apply at the level of portfolio management; the operative concept is management, implying professional management. passive investing is something else. An individual who buys an index fund is engaging in passive investing as is an investor in a limited partnership deemed passive by the Internal Revenue Service. But should the same individual hire an investment counsel, who chose to place his or her client's funds in passive investments, the investment counsel would be making investment choices and thus be engaged in active management. The passive investments themselves might or might not be under active management; an index fund would be under passive management, while the passive limited partnership, having business activities, would be under active management.