The prevailing sentiment this year is that long-term trends will continue to drive growth in asset management, with investor allocations expected to rise in 2024 for private credit and private equity. Hedge funds and long-only fixed income strategies are also gaining traction. However, not all asset managers are poised for optimal growth over the next decade, given the evolving sources of capital, diversified investment opportunities, and changing investor exposure requirements. Inflation, market volatility, and interest rate fluctuations remain significant concerns for both investors and asset managers in terms of sourcing, funding, and managing investments. In Europe, managers face additional challenges with regulatory changes, averaging one major update approximately every 14 months.
Large-Scale Transformations to Scale Internal Capabilities
To remain competitive, asset managers are enhancing their value propositions by offering investors access to a wider range of asset classes, geographies, and varying degrees of liquidity, risk, duration, and return. While organic growth is part of this strategy, there is a significant shift towards inorganic growth, with “nearly three-quarters (73%) of asset managers considering strategic consolidation with another asset manager,” according to PwC’s 2023 Global Asset and Wealth Management Survey.
In response, a growing number of institutional asset managers are undertaking significant transformations to attract, deploy, and manage capital more efficiently and effectively. These transformations range from minor adjustments to comprehensive overhauls, depending on the manager’s current stage of evolution and their target state.
These trends can be categorized into three major areas, each with its own sub-trends:
- Organic and Inorganic Expansion to Build a Larger Product Set and Access New Pools of Capital:
- Asset managers are diversifying their offerings to include more asset classes and geographic regions.
- Strategic consolidations and partnerships are being pursued to leverage synergies and expand market reach.
- Cost and Scale Initiatives to Enable Efficient Growth:
- Implementing cost-saving measures and leveraging economies of scale are critical for sustainable growth.
- Technological advancements and process optimizations are being adopted to improve operational efficiency.
- Sustainability Initiatives to Meet Regulatory and Investor Requirements:
- Adhering to regulatory changes and integrating sustainability into investment strategies are becoming increasingly important.
- ESG (Environmental, Social, and Governance) factors are being prioritized to meet investor demands and regulatory standards.
By focusing on these strategic considerations, asset managers can better navigate the complexities of the market, meet evolving investor needs, and position themselves for long-term success.