Yeah but that's not the case. Given the relative size of the retail market vs superannuation, wholesale, etc markets then you need to question whether all these markets are likely to become passive. Superfunds continue to be largely actively managed.

Even if this wasn't the case, there would be market forces with more investors moving towards active management if there became real opportunities due to over use of passively managed index funds.

Do remember the sheer size of the markets. Especially superannuation. Superannuation will typically have net inflows. Especially with increasing employer SG. So even if some people are selling, there will typically be a lot of people buying also.

If you think this is such a severe problem. Can you please quote figures. For all the invested monies (retail, wholesale, institutional, etc) what is the breakdown for passively managed index funds? Does it really make up as significant allocation as you expect? Is this likely to change? Super is becoming more prevalent and more often than not, people stick with the default offering which typically is actively managed.