2025 investment management outlook
Navigating fast-paced change, elevated risk, and outsized opportunity
Key takeaways
- With increasing investor appetite for low-cost funds, the low-expense ratio environment may be here to stay with active management finding a home inside the exchange-traded fund (ETF) wrapper.
- Expanding the product lineup into alternative investment offerings such as private credit and evergreen or hybrid fund structures, as well as investing in technologies that integrate artificial intelligence (AI) into sales and distribution processes may be among some of the most successful revenue-enhancing strategies.
- In 2024, AI technologies promised to be one of the most disruptive forces in the investment management sector. Now, it seems that promise has likely surpassed expectations. While the opportunity buzz is growing, many organizations may be left to determine how to effectively harness AI solutions at scale without prior models to guide them.
- Firms likely face some of their biggest risks in areas such as digital transformation, technological advancements, and cybersecurity. Specific product and regulatory developments are also bringing important risk elements to the investment management industry in the form of direct indexing, mutual fund to ETF conversions, convergence of traditional and alternative asset classes, and sustainability-themed investment products.
Mounting risks facing investment management firms in 2025
2025 is likely to be a period of rapid change
While growing revenue, streamlining processes, and managing risks is expected to be a priority for management teams in 2025, the opportunities and pitfalls could present outsized risks and rewards for investment management firms. Firms that effectively integrate emerging technologies like generative AI have the potential to achieve significant rewards due to the substantial enhancements these technologies bring to the current environment. Firms that succeed will raise expectations for all industry participants. Firms that don't keep up with these evolving expectations could risk falling out of favor, as the leaders accelerate away. A once-in-a-generation opportunity to differentiate may emerge in 2025.
