In 2024, the asset management industry saw significant expansion, with global assets under management (AUM) reaching a record $132 trillion by June, rebounding from the previous year’s downturn. This growth was fueled by strong market performance and healthier net flows, despite challenges such as outflows from high-fee active equity mutual funds and shifts in private markets.
However, the industry also faced challenges, including fee pressures due to the ongoing shift from active to passive investing, rising operational costs, and the need for continuous innovation to keep up with changing client expectations. Additionally, geopolitical tensions and economic uncertainties led U.S. asset managers to strengthen their presence in Europe, increasing competition and pushing European firms to either innovate or consider mergers to stay competitive.
Here are some key trends expected to shape the industry in 2025 and beyond:
Growing Role of Alternative Investments and Outsourcing Models
In 2025, alternative assets are set to play an even bigger role in client portfolios as investors look for diversification and higher returns. A recent CAIS-Mercer survey found that 62% of financial advisors currently allocate between 6% and 25% of client portfolios to alternative assets, with 85% planning to increase these allocations in the next year. Private debt (91%), private equity (93%), and real estate (96%) are among the top choices.
To support these changes, outsourcing models are evolving, with fund managers increasingly using technology-driven solutions. The co-sourcing model is expected to gain more traction, allowing fund managers to maintain control and real-time access to data while benefiting from the expertise of fund administrators.
Additionally, hybrid funds—combining features of both hedge funds and private equity structures—will continue to rise in popularity. While these funds create new opportunities, they also require advanced infrastructure and expertise to manage effectively. As alternative investments and outsourcing models reshape the financial landscape, fund managers and administrators must remain adaptable to ensure growth and operational success.
The Impact of AI and Digital Transformation
Artificial Intelligence (AI) and Machine Learning (ML) have already transformed fund administration, enabling predictive analytics, automating decision-making, and improving operational efficiency. By 2025, the hedge fund industry is expected to see a 15% increase in AI-driven investment strategies, with more than 60% of firms using advanced machine learning techniques.
As AI and ML continue to develop, fund management will become more streamlined and data-driven. Advanced reporting tools will provide deeper insights, identifying patterns that human analysis might miss and enabling more sophisticated, real-time decision-making. These technologies will help firms manage large amounts of data efficiently, enhance security, and improve compliance monitoring. For fund administrators, investing in AI will be crucial for staying competitive, meeting investor expectations, and driving innovation.
Adapting to an Evolving Regulatory Landscape
Regulatory and compliance challenges are expected to become even more complex for fund managers, requiring firms to be more responsive and adaptable. In Europe, the Digital Operational Resilience Act (DORA), taking effect on January 17, 2025, will introduce a standardized framework for digital resilience in the financial sector. This regulation includes requirements for governance, risk management, cybersecurity testing, and oversight of third-party service providers.
Meanwhile, in the U.S., the Securities and Exchange Commission (SEC) has introduced new rules for private fund advisers, requiring detailed reporting on fund performance, fees, and internal rates of return. These regulations aim to improve transparency and protect investors, pushing fund managers to implement stronger compliance frameworks.
As fund structures become more complex, the role of third-party fund administrators will become increasingly important. Their expertise in handling multi-jurisdictional regulations and growing reporting requirements will help fund managers reduce operational risk and focus on their core investment strategies.
Increasing Demand for Cross-Border Investment Services
The global investment industry is expected to continue expanding into new markets, as fund managers seek growth opportunities and portfolio diversification. To succeed, firms will need to navigate different regulatory environments, market dynamics, and operational complexities.
Managing cross-border investments requires expertise in compliance, tax regulations, and legal structures across multiple jurisdictions. Investor reporting is also becoming more complex, with different regions requiring varying levels of transparency. To address these challenges, fund administrators must leverage technology for risk management, secure data handling, and compliance monitoring. Firms that can provide seamless, scalable solutions will be well-positioned to support fund managers’ international ambitions in an increasingly connected investment landscape.
Personalization Becomes a Key Focus in Client Services
The asset management industry is shifting toward customized investment solutions to meet evolving client expectations. Investors now want portfolios tailored to their risk preferences, values, and financial goals. As achieving high returns becomes more difficult, personalized investment products are emerging as an attractive alternative to low-cost, passive strategies.
Asset managers are using data analytics, AI, and machine learning to offer customized solutions at scale. According to Accenture, 80% of asset managers view mass customization as a key growth driver over the next five years. This trend is transforming client interactions from traditional sales and marketing approaches to a more integrated, strategy-driven focus. By leveraging technology to offer personalized communication, investment products, and value-driven solutions, firms can enhance client engagement and stay competitive.
ESG and Sustainable Investing Remain Priorities
Environmental, Social, and Governance (ESG) factors continue to shape investment strategies. By 2025, over 50% of hedge funds are expected to incorporate ESG criteria into their investment processes, reflecting growing demand for responsible investing. This shift is being driven by investor expectations and regulatory pressures, which require firms to establish clear frameworks for assessing and reporting ESG performance.
While ESG-focused strategies align with investor values, a major challenge in 2025 will be proving that these portfolios can generate strong returns. Some ESG investments, particularly in technology, have experienced volatility, while industries like energy and commodities—less aligned with sustainability—have continued to perform well. Fund managers will need to find a balance between sustainability goals and delivering consistent financial outcomes.
Strengthening Cybersecurity Measures
With cyber threats becoming more sophisticated, cybersecurity will remain a top priority for asset managers in 2025. As digital platforms become essential to fund operations, firms are facing growing risks from phishing attacks, fraudulent websites, and data breaches. Clone websites that mimic legitimate financial firms are increasingly being used to steal investor information.
To mitigate these risks, firms must combine advanced security technologies with regulatory compliance measures. Strong cybersecurity frameworks will be essential for protecting sensitive data and maintaining investor trust in an increasingly digital financial world.
The Continued Importance of Client Relationships
Even as technology transforms fund administration, strong client relationships will remain at the heart of the industry. In 2025, delivering exceptional client experiences will be a key differentiator for firms looking to stand out in a competitive market.
Providing excellent service will require a balance between advanced technology and personal interaction. While digital tools can enhance efficiency and personalization, the human element—clear communication, tailored support, and proactive relationship management—will continue to define successful administrators. Fund managers that prioritize client engagement and transparency will build stronger, long-term relationships.
Conclusion
The asset management industry is set for a transformative year in 2025, shaped by innovation, evolving investor expectations, and a more complex global environment. To succeed, firms will need to embrace new technologies, adapt to regulatory changes, and prioritize client-centric strategies. By balancing operational excellence with strong personal relationships, asset managers can navigate these challenges and continue driving growth in a rapidly changing industry.
