> You're talking as if there's a swarm of fresh money flowing into the market, whereas it's more a case of people shifting away from traditional actively managed mutual funds etc. into indexing.

Yeah, the question seems to be about fresh money. You could be right that we are mostly witnessing a shift from actively managed funds to indexing. As far as my home country (Germany) is concerned indexing seems to become more attractive to people who never invested, though. Now that I think about it I am not sure whether or not this kind of money would be "fresh money" as these people stored their money in banks who were probably investing it.

> Money is cheap at the moment because growth is low, and that in turn means resk premia are lower and so on, but I don't think that's related to the rise of index funds. Then again I never understood why active management was so popular in the first place.

As I understand it, risk premia is not related to growth. It is simply the costs to transfer risk to someone else. Active management was probably high in the past as banks had little incentive to sell passive investment plans: If people don't constantly buy and sell they don't cause transaction costs and thus income for the bank. Active and passive management are both neither inherently wrong or right. Until now active investment has been irrational but it could theoretically change if the share of money passively invested is high enough, say (made up number incoming) 80%.

> As I understand it, risk premia is not related to growth. It is simply the costs to transfer risk to someone else.

My point was that investors targeting a particular rate of return are having to take on more risk (because growth is low), which in turn lowers the risk premium through ordinary supply and demand.

"Money is cheap at the moment because growth is low, and that in turn means risk premia are lower and so on"

Maybe. Money is cheap if you are a bank or a government backed borrower (like a conforming mortgage loan in the US).

If you have collateral, like the car you're borrowing against, money is kind of cheap ... also if you have a perfect credit history.

But I am not so sure that money is cheap right now out in the real world. If you are a new business with no track record or a consumer with poor credit history I think money might be quite expensive for you ...

> But I am not so sure that money is cheap right now out in the real world. If you are a new business with no track record or a consumer with poor credit history I think money might be quite expensive for you ...

Really? My understanding was that (non-mortgage) subprime lending was higher than ever, business loans were cheaper than ever...