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In 2025, the asset and wealth management (AWM) industry will continue to face significant challenges due to external forces such as geopolitics, interest rates, regulation, and emerging technologies. These pressures will impact front offices globally, necessitating a focus on value creation for clients which will cascade to operations and technology for enablement.
Managers must remain competitive by lowering expense ratios, generating higher returns, retaining clients, and diversifying investment risk. This will drive the need for new product capabilities, increased scale, market expansion, and operational efficiency maximization.
Three key trends that we see as a response from asset and wealth managers as they adjust to these external market forces are Alternatives, AI, and resilience driven Transformation. These trends will accelerate changes in AWM, rendering previously employed growth strategies less effective as we move into the latter half of the decade.
The theme is more evident than ever - managers must build resilience from front to back-office, to maintain competitiveness and drive growth in the current era of disruption and accelerated change.
Private markets and other alternative assets continue to evolve and attract a broader base of investors seeking to complement their traditional market exposures. We see an increase of traditional managers targeting incorporation of private equity, private credit, real estate, digital assets, and infrastructure products into their portfolios. The drivers are simple and well documented: higher returns, risk diversification, and a large untapped market as potential.
As an example, this was highlighted by the announcement of State Street and Apollo’s Private Market ETF, which will grant private market exposure to retail and individual investors. Adding to this momentum, SSGA has also formed a Strategic Relationship with Bridgewater Associates citing that "41% of US financial advisors plan to advise clients to increase their allocations" in the private markets. BlackRock has also made an investment recently with the acquisition of HPS Investment Partners, stating that it expects private credit will more than double to 4.5 trillion by 2030.
From an operations and technology perspective, we expect to see vendors that have traditionally supported the public market instrument trade lifecycle explore expanding their capabilities to support alternative strategies, or perhaps integrate and collaborate with current providers.
On the asset servicing side, we have seen numerous managers switch service providers as they launch new private market mandates to meet the complex global operational needs of initial product launches, cash management services, and custody. We should continue to see movement and expanded alts service offerings from the banks.
The reception of AI has ranged from skepticism to outright excitement. We currently see AI coming into the AWM market through two channels: vendor product enhancements and internal (in-house) adoption.
Platform vendors have started to incorporate AI into their products to enable ad-hoc, prompt-engineering enabled data queries, which could reduce the need for custom report development and empower users to take control of their own data on-demand. We’re also seeing workflow optimizations that make suggestions for faster portfolio construction decision making (yet to be seen are tools that will generate Alpha). Expect platform vendors to incorporate AI at an increasing level in their product roadmaps.
There are also investment management firms that are fully embracing AI for a variety of reasons. AI has shown some promise in enhancing the client experience by making suggestions based on behavioral patterns when they log on to portals and apps. Firms are also seeking to be competitive in the search for young talent. Younger workers may see a potential employer who fully embraces AI as a place where they are more likely to develop their forward-looking skills. Lastly, Gartner predicts that by "2027, AI global spending is projected to soar to nearly $298 billion, growing at annual rate of 19%." While this is not an AWM specific figure, it is an indicator that should be reflective within our industry, give or take.
One thing to keep on our radar is whether AI can shorten, if not eliminate, the change management process it takes to release features into production. In the case of data reporting, if a platform is AI enabled, can a portfolio manager simply query their exposure instead of having to wait for a new report to be coded and released? One thing is certain, in the long term, AI will introduce a paradigm shift in the way IT and Ops operate. This will enable faster changes to production systems, or reduce the need for change, which would be welcomed in supporting asset classes such as private vehicles that will be experiencing maturity in the coming years.
Historically, we have seen technology as an enabler for lean operational and front office processes that offered a "secret sauce" to give money managers a competitive advantage. Over time, both vendor platforms and asset servicers have incorporated these bespoke functions into their product offerings, effectively commoditizing them. This has had several cascading effects allowing for vendor consolidation enabled by a full front-to-back service offering across asset classes that was previously unavailable. When the time for modernization arrives, the vendor landscape now has a more mature offering.
New vendor offerings and the wide acceptance of cloud-based technologies have given investment managers options that will help them build resiliency into their digital core. Goals that seemed unattainable several years ago such as system consolidation and a streamlined operating model are now in reach through reinvention. Obviously, there are other factors in building resilience, but if a transformation is planned with this in mind, the next time the front office wants to launch a new product, perhaps you will only need to unlock the potential your investment platform already has.
It continues to be an exciting time to be in the fast evolving industry of asset and wealth management. Please share your thoughts on what you see changing in 2025.
