Welcome to the eighth edition of 10 Ideas in Asset Management. By many measures, 2024 was a challenging year, marked by rising geopolitical tensions, extreme weather events, social unrest, and shifts in the global political landscape. Despite these challenges, most financial markets—especially in the U.S.—remained resilient. As inflation eased and policies became more favorable, asset managers benefited from a strong two-year trend. However, beneath this seemingly positive momentum, deeper shifts are taking shape that will influence the industry in 2025 and beyond. Here’s a look at some of the major trends that will shape asset management in the coming year.
1. Integration Becomes Essential
As client needs evolve, they are looking for more complete solutions and seamless experiences. Firms that combine multiple services—such as product creation, distribution, advisory, asset servicing, and risk management—will be in a strong position to meet these needs. So far, very few firms have fully leveraged these advantages, but that is about to change. Companies will begin breaking down internal barriers, unifying data, and restructuring their business models to focus on client needs rather than outdated internal structures. The $400 billion retirement market is a prime example of where an integrated approach can create value by bringing together asset management, insurance, advisory, and technology services.
2. Public and Private Markets Converge
Investors are looking for stable and cost-effective returns, and both public and private assets have a role to play. Asset managers will increasingly mix publicly traded and privately held investments—starting with credit products—to create portfolios that offer better risk-adjusted returns, improved liquidity, and competitive fees. The market for semi-liquid investment funds, which has grown at an annual rate of 19% since 2018, is expected to expand further. Regulatory improvements, better technology, and the development of secondary markets will support this growth. However, structuring, pricing, and marketing these hybrid products will require new partnerships and specialized expertise.
3. Insurers Maximize Value in Asset Management
Insurance companies are seeking new ways to unlock the value of their asset management businesses, which collectively oversee $9 trillion in assets. This will lead to four possible strategies:
- Fully integrating asset management into their business model by acquiring liabilities to support their investment strategies.
- Using seed capital and innovative balance sheet strategies to drive growth.
- Establishing in-house asset management units focused solely on managing the company’s assets.
- Selling or spinning off their asset management divisions and reinvesting the proceeds into their core insurance operations.
4. Distribution Becomes a Bigger Differentiator Than Performance
While investment performance will remain important, it will no longer be the primary way most firms compete. Instead, strong distribution networks and client relationships will become the key drivers of success, combined with solid—but not necessarily industry-leading—returns. Today, many firms spend up to 80% of their technology budgets on investment management tools, and investment teams receive about 50% more in compensation than distribution teams. This imbalance is expected to shift, with more resources directed toward sales, client engagement, and data-driven marketing. The next major technology investment or star hire may focus on distribution rather than investment management.
5. A More Focused Approach to Global Expansion
Many U.S. and European asset managers have struggled to significantly increase their client base outside their home regions. Since 2018, the average percentage of assets managed for foreign clients has actually declined from 23% to 21%. Local investors tend to prefer homegrown products, and foreign distribution costs have risen without delivering meaningful growth. However, firms will not abandon their global ambitions. Instead, they will focus on fewer key markets where they can build strong local offerings through organic growth or acquisitions.
6. Quantitative Strategies Gain Ground
Active management continues to face pressure due to concerns about high fees, rising costs, and inconsistent performance. In response, asset managers are turning to systematic investment strategies that use data-driven techniques to construct efficient portfolios at lower costs. By incorporating quantitative tools into traditional active management, firms can cut production costs by up to 30% while enhancing their investment offerings.
7. Direct Sales Gain Momentum
For decades, asset managers have relied on intermediaries and investment consultants to distribute their products. However, this approach often limits their ability to build direct relationships with clients and increases costs. As a result, firms are increasingly shifting toward direct distribution models to better understand client needs and provide personalized solutions. Direct sales are already growing, with mutual funds sold directly to investors making up 15% of the global market—and this share is expected to increase. Concerns about channel conflicts are likely overblown, as many investors now divide their money between self-managed and advisor-led portfolios.
8. Traditional Asset Managers Exit Public Markets
Traditional asset managers looking to transform their businesses need to reinvest profits, shift capital, and rethink their organizational structures. However, the need to report quarterly earnings often limits their ability to make long-term strategic moves. Meanwhile, alternative asset managers—primarily focused on private markets—have seen their market value rise sixfold since 2018 and now represent 70% of the industry’s total market capitalization. In contrast, traditional asset managers, apart from the very largest firms, have seen little to no growth in their stock prices. Expect to see some publicly traded asset managers go private, merge with financial services groups, or pursue buyouts to gain more strategic flexibility.
9. Cost Pressures Drive Strategic Partnerships
Asset managers rely heavily on technology and service providers for essential functions like data processing and investment analysis. However, costs for these services are rising sharply, with annual price increases of 8% to 15% becoming common. To counteract these pressures, firms will seek more strategic partnerships, including data-sharing collaborations with other asset managers and vendor relationships that offer preferential pricing in exchange for deeper business integration.
10. Retirement Income Solutions Gain Traction
For years, efforts to develop effective retirement income solutions have struggled to gain widespread adoption. However, new innovations from asset managers, insurers, and technology providers are finally making these solutions more viable. These new products aim to provide retirees with more reliable income and longevity protection, often in simpler and more secure structures—though not always at lower costs. As traditional pension plans decline and populations age, the demand for these products is rising. Regulatory changes and public policy initiatives are also helping to drive adoption. While not all offerings will succeed, a few will likely stand out and establish themselves as industry standards.
These ten trends highlight the major shifts shaping asset management in 2025. As the industry evolves, firms that adapt to these changes—whether through integration, technology, or new distribution models—will be best positioned for success.
