Industry Overview

As we look towards the future of asset management, it's becoming clearer that the asset management sector is at a pivotal moment. For nearly two decades, the market performance has been the primary driver of revenue growth, which contributes to 90% of the industry's growth, according to Boston Consulting Group (BCG). However, this landscape shifted dramatically in 2022. Rapidly rising interest rates have led to declines in both stock and bond prices, which resulted in the second-largest annual drop in global assets under management (AuM) since 2005. The global AuM decreased by $10 trillion, or 10%, to $98 trillion. We also see that the net flow rate of assets fell below 3% for the first time since 2018, landing at just 1.6% of total AuM in early 2022, or $1.7 trillion. (See figure 1)

With this collapse of the built-in bull market that has continuously been supported by revenue growth, existing pressures on the industry have intensified. Asset managers are now facing a landscape that demands innovation and strategic adaptability to thrive.

3 Key Trends to Watch

1. Risk of Capital Availability

One of the significant concerns for asset managers as we move into 2024 is the availability of capital to fund growth. A study by KPMG in 2023 highlights that 40% of respondents* see this as the top risk factor. With market uncertainty, particularly around pricing, many investors are adopting a cautious, wait-and-see approach. This hesitation could impact the flow of capital, making it more challenging for asset managers to pursue growth opportunities.

2. Talent Risk and Employee Value Proposition

Another pressing issue is talent risk, especially for smaller organizations with less than $250 million in AuM. These firms often struggle to attract and retain skilled professionals. However, asset managers across the board are actively addressing this risk. According to the KPMG survey, one-third of respondents are focusing on implementing an employee value proposition to better attract and retain talent. This strategic initiative is crucial in ensuring that firms have the right people in place to navigate the complexities of the industry.

3. Technological Advancements and Digital Transformation

In response to these risks, technological advancements and digital transformation are becoming essential. Asset managers are increasingly leveraging technology to enhance operational efficiency, improve client experiences, and gain a competitive edge. The integration of AI and data science is particularly noteworthy, as it can unlock new insights, streamline operations, and deliver more personalized client experiences.

The asset management sector is undergoing a significant transformation, driven by both market dynamics and internal pressures. By focusing on the availability of capital, talent retention, and technological innovation, asset managers can navigate the complexities of 2024 and beyond. Staying attuned to these trends will be crucial for maintaining growth and achieving long-term success in this rapidly evolving landscape.

Curious about the main challenges the asset management industry will face? Stay tuned for our next post where we dive deeper into the obstacles ahead and explore potential strategies for overcoming them.

*Responses were collected from more than 170 asset management professionals in the US, primarily in C-suite and board roles, representing private fund managers, traditional fund managers, publicly traded entities, and institutional investors, investing across various asset classes including real estate, hedge funds, private debt, private equity, and public securities, with a majority holding $2.5 billion or more in assets under management (AUM).

Sources:

·      Boston Consulting Group. (2023). The Tide Has Turned: Global Asset Management 2023. Retrieved from BCG.

·      KPMG. (2023). Asset Management Industry Insights for 2024. Retrieved from KPMG.

Note: Compiled with the assistance of AI and verified by experts.