For sophisticated institutional investors, active management outperforms passive management by more than 180 bps per year in emerging markets and by about 50 bps in EAFE markets over the 1993 to 2008 period. In U.S. markets, active management underperforms. Consistent with these patterns in returns, institutions use active management more frequently in non-U.S. markets, particularly emerging markets. Finally, we provide some evidence that one contributor to the active outperformance is institutional constraints on flows to non-U.S. markets. Overall, our results suggest that the value of active management depends on the efficiency of the underlying market and the sophistication of the investor.