The asset management trends for 2025 will be shaped in large part by increasing integration of AI and machine learning in investment decision-making, along with the broader economic, political and cultural changes, affecting investment strategies and how firms operate.
The asset management industry is undergoing profound change, led by rapid advances in technology and a host of market forces and investment trends, causing asset managers to rethink old ways and reinvent themselves.
2024 has been a good year for US equities, and as of November 12, the S&P 500 is up 25% since the start of the year.
With momentum carrying into the new year, the expected growth and opportunities are there for the taking, but without a plan, asset managers will miss out.
Rising costs, competition, and complexity will present its challenges, but with a plan, firms can mitigate risks and reap the rewards.
Below are some of the trends to follow.
Nearly 5 years ago, Accenture surveyed asset management executives, and those executives agreed that technology, data and digital capabilities will be differentiators in 2025.
Those views are as true as ever today.
With the rise of machine learning and intelligent automation, asset managers must fully harness the capabilities of the technology to stay ahead, working efficiently and at scale.
And PwC reports that 90% of asset managers already use some form of AI within their organization.
And as more firms adopt Artificial Intelligence, the global AI asset management market size will grow from US $4.62 billion in 2024 to US $33.25 billion by 2033, a sevenfold increase.
According to researchers at Dutch-based asset management Robeco, their findings showed that machine learning models can improve investor predictions better than other quantitative models.
Additionally, these models can be used in a variety of ways, from predicting corporate bond yields to market betas.
And the use cases don’t stop there.
AI can be used for other investing-related activities like risk management, portfolio management optimization, and trading. The technology can be used for client communication, sales and marketing activities, talent acquisition, SEC filings and other compliance activities, as well as CRM system management.
Rather than be feared, AI should be viewed as a tool that provides great benefit when properly managed.
And prompt engineering is how to manage and master AI.
And when AI is properly utiized, it means generating alpha, controlling costs, increasing profit margins, maximizing human and technology productivity alike, and ultimately providing a better client experience.
Data is worth gold, but only if it is quality data.
One survey found that 72% of asset managers identified data quality as a primary concern and priority, up from 45% in 2022.
Having quality data is especially important for AI, which sifts through large volumes of data. If the information is wrong, the AI output is wrong too, leading to inaccurate reports, wrong investment analyses, and bad decision-making.
“Asset managers are focused on honing their distribution channels, and having access to high-quality, consistent data is crucial in driving those decisions.
It’s important that managers have a deep understanding of their clients’ needs so they can find them the right product at the right time, because there is no one-size-fits-all solution.”
- Ryan Burns, Head of Global Fund Services (GFS), North America
In 2025, total assets under management globally are expected to hit a record high at US $145.4 trillion.
The anticipated increases reflect market and economic optimism, in which growth is likely to be driven by a combination of factors, including rising global wealth, increased participation in capital markets, and the continued strong performance of various asset classes.
But not everyone stands to gain…
Despite rising assets, a disproportionate share of the growth will end up with bigger firms.
The largest 20 asset management firms account for 85% of total AUM in the US.
Tony Oputa, (former) Financial Services Leader at PwC, shared this take:
“Asset managers can take advantage of this massive global growth opportunity if they’re innovative. But it’s do or die, and there will be a ‘great divide’ between few have’s and many have not’s. As a result, things will look very different in five to ten years’ time and we expect to see fewer firms managing far more assets significantly more cheaply.”
To earn a greater share of the gains, smaller asset managers must carve out of a niche and stand out with exceptional experience, expertise, and client service.
Read More: How Smaller Firms Can Gain an Edge over Larger Competitors
There’s a lot to say about the return of Donald Trump to the White House.
… and the markets, too, have had a lot to say, with stocks surging to record highs in the first week after the election.
When Trump assumes office in January, investors assume the president-elect will propose tax cuts and deregulation, sparking more growth. However, more tariffs could limit or even reverse growth, exacerbating an already delicate inflation situation.
Trump’s return to the world stage and the role he plays in heated global affairs, from Ukraine and Russia to Israel and Gaza, as well as from Iran to the Taiwan Strait, can also impact the investment decisions.
Whatever happens, the portfolios will show the results, and asset managers might need to revisit their models, allocations, and risk exposure.
“Index funds have officially won.”
—John Rekenthaler, Vice President of Research, Morningstar
The push to passive continues, as investors pour money into low-cost index funds at a “historic pace.”
In January 2024, assets in passively managed funds surpassed those in actively managed funds for the first time ever.
While a concern for active asset managers, it’s not all negative.
Bond investors are paying up again for active fund managers, with $105 billion flowing into actively managed fixed-income funds on a net basis in the last year and with 74% of active funds outperforming their benchmarks.
Small-cap equity funds have also been a relative bright spot, as active managers have opportunities to find mispriced stocks in markets where information is less accessible.
As Morningstar points out, nearly 38% of active funds succeeded in that space over the past decade, a higher rate than the US large-caps, US mid-caps, and foreign-stocks.
Remember a few years ago when cryptocurrency was in complete free fall? Well, Despite the Sam Bankman-Fried FTX collapse, this asset class has recovered and showed it’s here to stay.
Since Trump’s election win, the value of bitcoin surged to $90,000, with expectations of an incoming “crypto friendly” administration.
While asset managers recognize the opportunities, they are not naive to the risks either, as many call for stricter regulation of digital assets.
The outgoing Biden administration took a first step with regulations, laying out the first-ever framework to capture the potential benefits of digital assets while mitigating the risks.
How a Trump administration plans to build on this (or set a different course entirely) remains to be seen.
ESG in asset management saw some pushback in 2024, with investors pulling money from sustainable funds in the US at a record pace.
Transparency, performance, and the regulatory environment have been called into question, with some firms scraping the ESG term from their marketing material, amidst lesser returns and even politicization of the term.
Across the pond, Europe saw increased inflows to its sustainable funds, remaining a “standard bearer” for ESG.
Despite pushback, there’s still a belief in the idea of sustainable investing (at least when done well), with 84% of American individual investors interested in these investments, according to Morgan Stanley.
And global market forces will further compel American asset managers to stay with ESG in the long run.
“Any fund house that intends to be a global player must adapt to this shift — including those in the US, despite any internal debates.”
-Ramnath Iyer, Sustainable Finance Lead, IEEFA
The Middle East is one of the fastest growing regions in the world for asset management, and the region’s assets under management jumped by 13% to $2.3 trillion.
Attracted by large pools of capital held by sovereign wealth funds, family offices, and institutions, many of the major global players are either entering the region for the first time or bolstering their existing presence.
The UAE and Saudi Arabia in particular have made great efforts to not only attract global investment with favorable tax and regulatory environments, but also attract business to support the region’s growing investment appetite.
Emerging market economies generally are expected to outpace developed market economies, considering favorable demographics and increasing domestic consumption, making them an attractive option for investors.
Royal Bank of Canada, for example, is betting on alternative investments and emerging markets debt and equity for its U.S. global asset management business.
And their CEO, Donald Sanya, is all for it:
"We really believe that this is an area that will continue to drive a lot of growth for us.”
Asset managers globally are significantly increasing their investment in cybersecurity.
According to a Moody’s study, spending on cybersecurity among insurers and asset managers increased by over 50% between 2019 and 2023. Also during that time, the percentage of total IT budgets dedicated to cybersecurity grew from 5% to 8%.
Despite cybersecurity threats, almost all firms are taking the threats seriously, with company surveyed having developed an incident response plan, plus 98% engage in multiyear planning to mitigate cyber risks.
Learn more about how asset managers are dealing with the cybersecurity threats.
Complying with SEC, GDPR, and DORA (Digital Operational Resilience Act) regulations - just to name a few - requires a lot of resources.
Regulators are more stringent with investor protection, transparency, and risk mitigation in mind, and while at face value these are good things, compliance is becoming increasingly costly.
To reduce costs spend less of limited time on compliance, many asset managers are automating related processes while ensuring adherence to regulatory requirements.
When asset managers partner with Empaxis for the middle-and back-office and technology needs, they know our strong compliance credentials.
We operate as an open book, audited by Ernst & Young, and ISO and SOC certified.
Additionally, we automate SEC compliance reports like 13D and 13F for asset managers.
The modern-day asset management leader must be an expert not only in investment strategy, but technology, client servicing, and business development.
Faced with rising costs and falling margins, asset managers are forced to take on many roles to stay relevant, competitive, and profitable.
Be a great investment strategist, but market yourself so that others know.
Be more digital than ever, yet be more human than ever.
Customize as much as possible to please the clients, but do so in a highly scalable and effective manner.
With so much on their plate, even the best of asset managers cannot do everything on their own.
And to deal with rising costs and lower margins, they are partnering with third-party experts to handle a variety of activities, including outsourcing trading/OCIOs, compliance, investment operations, accounting, HR, and technology management, among many other activities.
James Tamposi, Associate Director at Cerulli, said it best on third parties:
“As investing becomes more complex and challenging, keeping a firm focused on its main mission of generating returns is critical. By leveraging an outside party, managers can fine-tune their focus on other necessary strategic initiatives while building greater scale from a specialist.”
For the investment operations component, Cerulli also found that 33% and 20% of asset managers outsource the back office and middle office, respectively.
Of the asset managers surveyed by Cerulli, 58% cite leveraging external capabilities as a significant driver, followed by incorporating efficiencies (58%).
According to another PwC survey, 16% of existing asset and wealth managers are expected to either go out of business or be acquired by larger groups by 2027.
Given the challenges, nearly 3/4 of asset managers have considered acquiring or merging with competitors.
In the world of asset management and trends, there's never a dull moment.
As much news there is with economics and return of Donald Trump to the White House, rapid advances in Machine Learning and Intelligent Automation can really shake asset management to the core.
By noticing the trends and knowing how to react, asset servicing firms must do everything they can to put their best foot forward.
Despite the challennges ahead for asset managers, they have tools at their disposal to make it through and ultimately, come out ahead
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