Key trends in asset management

Published on May 30, 2023 by Nachiketa Trivedi

2022 has been a year of recovery, resurgence and return to a quasi-sense of normalcy. Just like the years before, the focus is still on fund distribution and costs. At financial institutions especially, the emphasis is now firmly on adopting modern, cost-effective promotional methods across marketing, reporting and operations. Although asset and wealth managers had the opportunity to develop deeper relationships during the pandemic through more one-on-one interactions, bigger firms are increasingly opting for more cost-effective digital-focused strategies.

With that in mind, here are some of the possible trends to look out for in 2023:

Growth of alternatives: The past few years have seen rapid growth in assets under alternative strategies. By 2025, alternative assets are expected to grow to USD17.2tn[1]. What drives this growth is the need for differentiated and uncorrelated returns, diversifying away from traditional asset classes, and downside protection during challenging economic conditions. Institutional investors and ultra-high-net-worth and high-net-worth individuals are the leading investors in these strategies. Among alternatives, private debt and infrastructure are expected to grow the fastest, while private equity is expected to be the mainstay of volume growth given the size of assets already under management[2].

Passive inflow: Growth in passive assets has probably been the most enduring trend in the asset management space. The pick-up in passives reflects a shift in the investment paradigm away from active investing and has been driven by growth in assets under equity and fixed income ETFs[3]. In 2021, ETFs saw asset inflow of USD900bn. In the US, passive assets are expected to overtake active assets under management by 2026 or earlier[4].

Growth of active ETFs: Investors pulling money from active mutual funds, regulatory changes and tax advantages have led to the proliferation of active ETFs[5]. Active ETFs have represented the majority of ETF launches over the past three years[6]. Active investment managers foraying late into ETFs are also finding an entry point into the already overcrowded ETF space by launching active ETFs. These ETFs offer the potential to produce higher returns along with the lower fees characteristic of the ETF fund structure. Active ETFs is a space to watch in 2023 and beyond.

Shift to sustainable investing: The rise of sustainable investing, a consequence of the increasing scrutiny of investments taking into account Environmental, Social and Governance (ESG) factors, has been the strongest and one of the most definitive changes in investment approach the asset management industry has experienced in recent times. ESG funds grew at a record pace in 2021, with assets up 53% to USD2.7tn in assets[7]. The juggernaut of sustainable investing is already mainstream and is expected to continue rolling into 2023 and beyond.

Regulations and reporting around ESG products: The growth of sustainable investing, characterised by the launch of new sustainable investment funds and strategies and the repackaging and repurposing of existing strategies to serve the purpose, has attracted much regulatory attention and led to a proliferation of regulations focused on standardisation, transparency in reporting and protection of investor rights. The most prominent of these is the EU Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy and the MiFID II, along with regulatory changes made by the US Securities and Exchange Commission (SEC). These regulations add to the reporting burden of asset managers, who have had to set up dedicated internal departments and units and rope in data service providers to meet this increased burden. The demands on regulatory reporting are expected to continue into 2023 and beyond as new requirements and deadlines come into force.

Data strategies: Factors such as the mainstreaming of alternative asset classes, the rise of new investment styles and growing customer preference for new investment vehicles have increased the type and nature of data that asset managers now store. Much of this data is stored in databases and systems that are not very well integrated. The increased granularity of the data required for regulatory and client reporting purposes is compelling managers to rethink their approach and adopt a more systematic and holistic data strategy. Asset managers are now working to centralise data and invest in systems and capabilities that can rapidly consolidate and aggregate data and produce reports that also slice and dice the data to meet reporting requirements[8].

Cybersecurity concerns and movement to Cloud: Cybersecurity risk is one of the key threats asset managers face[9]. From the start of the COVID-19 crisis until mid-2022, cyberattacks increased 700%, and 80% of those attacks originated at endpoints[10]. The asset management industry is not removed from this concern. Asset managers are being scrutinised by regulators such as the US SEC on their preparedness to address cyber threats. In view of mounting cybersecurity concerns and the criticality of data that investment managers store, asset management firms have been making ever larger investments to upgrade their information security and technology infrastructure. They have also been turning to specialised technology firms for help. These specialised vendors help in assessing and testing the robustness of internal technology infrastructure and offer expertise that is beyond the capability of a traditional asset management firm. Another area these firms are investing in is cloud-based solutions. Over 2019-22, the number of asset managers saying no to cloud-based solutions dropped from 53% to 5%, quite a paradigm shift[11]. These solutions give asset managers access to advanced security measures that they may not have been able to build in house or would have required heavy budgetary allocations.

Outsourcing: The asset management industry is increasingly looking towards outsourced services to address challenges beyond the scope of their core expertise, relying on specialised service providers to free up resources and focus on their core capabilities. According to the Global Asset Management Survey Report 2021, 54% of asset managers are looking for external strategic relations to build technology capability[12]. In addition, the outsourcing strategies of asset management firms include not only back-office and technology functions, but increasingly also middle-office and front-office services[13]. Asset managers are now closely scrutinising their value chains to outsource non-core activities.

How these factors impact proposal teams

DDQs and client requests: In the past few years, and also in 2022, asset managers have seen an increase in the number of DDQs and client servicing requests from existing relationships. Over time, these requests have also gained in complexity and become more topic specific. The key concerns of the asset management industry and the shifts it has been witnessing have been reflected in the nature of DDQs and client requests received. This includes the exponential growth in the number of requests focused on sustainable investing (ESG, net zero, climate change and modern slavery) and on information security and diversity and inclusion – although this latter has been at a more moderate magnitude.

The ever-changing asset management landscape and the developments that define these new trends add to the challenge. While the volume of such topic-specific requirements has spiked, existing recurring DDQs and client servicing requests have also become more extensive and technical, requiring greater coordination and the involvement of subject matter experts. This in turn entails the setting up of more specialised teams to handle such requests – for instance, ESG reporting teams to provide ESG-related data, and reporting-focused risk teams to address the increased focus on liquidity following the pandemic-induced liquidity squeeze.

Asset managers are looking towards process- and technology-driven solutions to manage these spikes. In terms of both resourcing and technological know-how, Acuity Knowledge Partners has established itself as a trusted associate for many of the world’s premier asset management firms and works with them on DDQs and client requests. Backed by its rich pool of writers and subject matter experts, combined with its technological resources, the company has built the necessary expertise to navigate the changes that define the asset management space.

Relevance of Acuity

Acuity Knowledge Partners (Acuity) has been the trusted partner of globally renowned asset management firms for over two decades. Recognised as the Best Outsourcing Service Provider by Waters Technology in its annual Waters Rankings in 2021, Acuity works closely with asset managers at the fore front of change in both collaborative and consultative capacities. Acuity understands the challenges and transformational needs of global financial service companies. To support its clients, the company has added new capabilities and solutions across client segments. These include SPAC support, valuation and advisory support for investment banks, retail mortgage and loan operations support for commercial banks, marketing solutions for wealth management and commercial banks, and ESG research for asset management. Acuity’s record growth over recent years has solidified its position as the largest player offering offshore research, analytical and data management support to financial institutions via its global network of delivery centres.

[1] Source: https://www.nasdaq.com/articles/alts-for-all%3A-the-growth-of-alternative-investments-explained

[2] Source: https://caia.org/blog/2022/04/23/growth-alternatives-aum-hit-2321tn-2026

[3] Source: https://300hours.com/asset-management-outlook-jobs-impact/

[4] Source: https://www.bloomberg.com/professional/blog/passive-likely-overtakes-active-by-2026-earlier-if-bear-market/

[5] Source: https://www.ft.com/content/8eeaa162-140d-4086-a344-3310125b8d3f

[6] Source: https://www.etftrends.com/active-etf-channel/active-etf-launches-are-on-the-rise/

[7] Source: https://www.bloomberg.com/news/articles/2022-02-03/esg-by-the-numbers-sustainable-investing-set-records-in-2021

[8] Source: https://www.landytech.com/blog/top-asset-management-trends

[9] Source: https://www.linedata.com/global-asset-management-survey-report-2021-adoption-esg-outsourcing-and-cloud-whats-next-asset

[10] Source: https://www.linedata.com/global-asset-management-survey-report-2021-adoption-esg-outsourcing-and-cloud-whats-next-asset

[11] Source: https://www.funds-europe.com/opinion/outsourcing-why-asset-managers-are-rethinking-operating-models

[12] Source: https://www2.deloitte.com/fr/fr/pages/services-financier/articles/outsourcing-asset-management-industry.html

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