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The future of asset management is a hot topic as both Boston Consulting Group and Northern Trust have published reports on how the industry needs to change as costs have been rising faster than revenues.
Assets under management in the global fund management industry increased by 12% in 2023 to nearly $120 trillion, but costs rose far more than revenues, according to Boston Consulting Group. The 22nd edition of the consultancy’s global asset management report, AI and the Next Wave of Transformation, released this month, said the industry’s revenues increased by 0.2% in 2023. However, costs rose by 4.3% leading to an 8.1% decline in profitability. In addition almost all, 90%, of the industry’s revenue growth has come from market appreciation since 2005.
Dean Frankle, partner at BCG and co-author of the report, said in a statement that structural challenges facing asset management will continue to grow. He said: “To remain competitive, asset managers will need to seize the opportunities offered by artificial intelligence and double down on investing in enhanced productivity, product personalization, and the opportunity of private markets.”
BCG, in partnership with the Investment Company Institute (ICI) and the CFA Institute, conducted a global survey of asset managers in the first quarter of this year on the adoption of generative artificial intelligence (GenAI). Nearly three quarters, 72% think that GenAI will have a significant or transformative impact on their organization within the next three to five years and two thirds, 66% have made GenAI a strategic priority for their business.
Peter Czerepak, senior partner at BCG and co-author of the report, said in a statement: “Generative AI opens up tremendous potential for innovation within the asset management industry. Achieving results will require strategic thinking and the ability to execute at scale.”
For example, AI can support investment teams by accelerating investment research through quickly gathering, synthesizing, and analyzing both proprietary data or alternative data sources including public filings, macroeconomic statistics, and geospatial reports. AI tools can also facilitate effective knowledge management and data sharing by organizing reports, data sets, and research developed by investment teams. BGC said; “As a result, AI can break down silos and minimize redundant analyses, which occur frequently when investment teams managing different funds or products are exploring similar themes.”
Investment managers are prioritizing the quality and accuracy of their products to enhance the investor experience and grow their distribution in the next two years, according to a survey of 300 global asset management firms sponsored by Northern Trust.
Northern Trust has also issued a white paper, The Next Chapter in Driving Growth in Asset Management 2024, which found that nearly three quarters, 72%, of fund managers said enhancing quality and accuracy of data was their top strategic priority in the next two years. Northern Trust said the results marked a shift from manager priorities in the prior survey in 2022, when just 45% of managers identified enhancing quality and accuracy as the top priority, behind efficiency and cost controls.
The survey, conducted for Northern Trust by WBR Insights, highlighted that 83% of respondents plan to change their product strategy in the next two years, with a focus on meeting diverse investor needs.
Clive Bellows, incoming president of Northern Trust in Europe, Middle East, Africa, said in a statement: “Many of the challenges we’re seeing today come back to the same core issue: data. As a result, managers are looking to leverage new technology, and the survey found that many managers are looking to enhance their data management strategies by engaging their custodians for outsourced solutions.”
Data management was overwhelmingly identified as the area where asset managers are considering outsourcing (83%), and almost half (42%) of respondents identified their biggest challenge with data management as ensuring that the data is easily understandable/consumable and insightful.
