The new face of asset management

Key Takeaways

• The painful conditions asset managers have faced recently will continue over the next two years.
• Many asset managers are at the start of the digital and AI technology journey, but they need to accelerate the pace.
• It is not just about new systems, but also harnessing the power of human-related skills.

The asset management industry has not had an easy time over the past few years, characterized by consolidation, squeezed margins, increased volatility, and ongoing regulations. These trends are likely to continue. However, those firms that embrace automation, artificial intelligence (AI), and analytics will stay one step ahead.

The main challenges are encapsulated by the Carne Group’s latest report – Supermodel: The Great Evolution in Asset Management, which canvassed 200 asset management executives on the commercial pressures their businesses were likely to face in the next two years.

Profitability under threat

The survey found that the combination of fee pressure, legislation, and operating costs will impact profitability this year and into 2026. Around 72 percent of respondents believe traditional fund managers will be the hardest hit due to the surge of passive investing along with increased scrutiny by both clients and regulators on value. As a result, most (79 percent) expect to undertake some level of product rationalization, with actively managed funds in public markets being the main casualties.

Alternative managers will not escape unscathed. The Carne report notes that they have their own set of challenges, especially those with strategies reliant on leverage. Interest rates have been cut, but they are still not low enough to dampen high borrowing costs. This has also made it difficult for private equity managers to sell their stakes in line with client expectations.

In addition, competition for talent is fierce across the alternative spectrum, pushing up wage bills. Some 37 percent of respondents, compared to 27 percent of their traditional peers, saw this as a major issue.

Modernizing technology infrastructure is crucial

Success for both cohorts will require modernizing technology infrastructures. While this is considered short-term pressure, they do not refute the long-term benefits of digital technologies and automation. Profitability is also expected to improve with the adoption of advanced tools – such as machine learning (ML) and AI, and centralizing data management.

These views are mirrored in Accenture’s recent report – The Future of Asset Management, which polled 250 executives in North America. However, this survey revealed that there is a big gap between vision and reality in terms of the use of advanced technologies. Nearly all respondents – 95 percent – believe data and digital capabilities will be differentiators in 2025. Yet many are still in the early stages of exploration and prototyping with several emerging technologies, including AI. Moreover, 72 percent did not view themselves as leading firms in terms of their digital maturity.

The Accenture study noted that asset managers who do not embrace AI, analytics, and alternative data will face difficulties in reducing costs, delivering innovation, quickly adapting to evolving products and services, and enhancing performance. Accenture cites a separate research study, which showed mature firms that industrialized and scaled AI across the investment process generated up to 300 bps of alpha collectively – from research, analysis, portfolio management, and trading optimization.

Customization is fundamental to personalized offerings

Equally important, the technology will enable fund managers to develop tailored offerings. This has become increasingly important with four out of five stating that “customization for the masses” will be a key growth driver over the next five years. This is because alpha is becoming more difficult to attain and clients demand a better experience. In the past, the latter was seen as the preserve of the sales and marketing function. Today, those firms that can personalize products and services at scale across the entire business will have an edge.

A recent Deloitte report on the asset management community echoes these sentiments. It added that expanding alternative investment offerings – such as private credit and evergreen or hybrid fund structures – and investing in technologies that integrate AI into sales and distribution processes will be some of the most successful revenue-enhancing strategies.

The report also states that one of the challenges of harnessing these new technologies at scale is the lack of prior models to guide them. This is especially the case with AI. Investment firms will need operational nimbleness and the ability to integrate these tools into existing systems and processes. One of the first steps is to conduct a bottom-up assessment of their current technological landscape to assess exactly what is required.

Human capital should not be discounted

Moreover, firms should not underestimate the value of their people. The Deloitte report pointed to a separate and recent survey Deloitte AI released on C-suite executives. It said that human-related skills are vital, especially those of critical thinkers and problem solvers who can work in a team and who are flexible and resilient. On the technology front, the report gave high marks for data analysis, information research, and application development.

The asset management industry stands at a critical juncture. While facing persistent pressures from squeezed margins, regulatory changes, and heightened volatility, the path to resilience and growth lies in strategic technological adoption. Automation, AI, and advanced analytics are no longer optional but essential for firms aiming to navigate the evolving landscape. As the reports from Carne Group, Accenture, and Deloitte highlight, modernizing technology infrastructure, embracing AI for enhanced performance and personalized offerings, and cultivating a workforce equipped with critical thinking and data analysis skills will be the defining factors for success. Ultimately, those firms that can seamlessly integrate these technological advancements with their existing systems and prioritize human capital will secure a competitive edge in an increasingly demanding market.