While the rise of ETFs has been good for ETFs, it has come at the expense of many mutual fund managers -- humans who have seen about $1 trillion in outflows over the past four years. The situation has confounded many active fund companies and fueled consolidation in the industry. Now, a prominent active fund advocate and ETF critic says he’s found a better strategy: mutual funds with performance-based fees.

On this episode of Trillions, Joel and Eric speak with Peter Kraus, former CEO of Alliance Bernstein, who discusses his new endeavor, Aperture Investors; also joining the conversation is Sonali Basak, a finance reporter with Bloomberg News. Kraus plans to offer actively managed mutual funds that cost about the same as a passive ETF -- unless his portfolio managers outperform their benchmarks and generate alpha. Aligning compensation with performance, Kraus says, is a better incentive than charging a fee based on assets under management. The episode also covers shortcomings of the ETF, why active management needs a dose of creative destruction and how a portfolio might benefit from performance-linked fees.