The asset management landscape continues down a path of transformation and recovery into the second half of 2024.
Stabilizing interest rates, equity rallies, and moderating inflation are met warmly from investors— yet a twinge of uncertainty remains with the upcoming U.S. presidential election and pending decisions from the Federal Reserve on the movement of interest rates.
The proliferation of artificial intelligence (AI) and generative AI (genAI) continues to dominate as an impactful trend in the asset management space. From surfacing opportunities and conducting due diligence, to streamlining workflows and portfolio management, AI is now a key tool for most asset managers. Those who have been slow or resistant to adopting these technologies have fallen behind the competitive curve.
These factors, among others, have laid the foundation for a year marked with cautious optimism, growth, and even more transformation. Asset managers that will find success in raising alpha amidst these evolving and sometimes challenging conditions are those that can pivot strategically, hone thought leadership, and implement adaptive protocol and programs to align with changing market trends—with the end goal of attracting investor capital and bolstering performance for their stakeholders.
Below, we evaluate some of the key trends shaping the asset management industry into the second half of 2024 and beyond.
Key Trends At A Glance
- Projected interest rate cuts and updated growth projections
- Strong recovery on the private equity front
- The era of digital transformation and investment in AI infrastructure
- Equity market rallies amid ongoing fluctuations
- Ongoing active vs passive management battle
Asset Management Trends to Watch
Anticipated Rate Cuts and Growth Projections
Starting in March 2022, the Federal Reserve increased interest rates 11 times in an effort to curb rising inflation. In 2023, rates underwent an increase four times and remained on course the other three instances of the Federal Open Market Committee (FOMC) meetings. At their last meeting in July, the Fed kept interest rates steady.
In June 2024, the consumer price index (CPI) fell to 3%, the lowest in over three years. Dwindling inflation is one positive data point that increases the likelihood of a rate cut. The FedWatch tool, which tracks the likelihood of rate changes, predicts a rate cut at the Fed’s upcoming September meeting. Some experts believe there may be more than one in store before year’s end.
Decisions of this nature inevitably impact the markets and have a concerted trickle-down effect. For investment managers, navigating a stable to lower interest rate environment will allow asset classes to thrive, and as the credit crunch eases, managers will have an opportunity to capture the upside of these economic cycles.
Recent broker research sourced from the AlphaSense platform indicates stronger than expected US growth from the start of 2024, and higher GDP growth figures than initial projections at the beginning of the year. It is expected, however, that headwinds will persist with moderately restrictive financial conditions and diminishing wealth effects. The analyst report projects a Fed rate cut will not come until much later, in December 2024.
Strong Private Equity Recovery
The private equity space has made notable progress into 2024, lending hope for broader macroeconomic recovery. An EY report finds that private equity activity saw its strongest quarter in two years in Q2 2024. There were over 120 deals announced valued at $196 billion, nearly double the amount in Q1 of this year. It was also the strongest period for capital deployment since the downturn began in Q3 2022.
Analyst research from the AlphaSense platform reiterates findings that the PE space has been growing at twice the rate of public markets, with equally impressive performance. Areas such as infrastructure and private debt remain viable growth opportunities for investors in the space.
One factor most experts agree may conditionally alter outlooks for the remainder of the year, across asset classes and trends, is the U.S. Presidential election.
Broker research published this week, sourced from AlphaSense, supports the notion that interest rate cuts in the second half of 2024 will drive greater deal activity in the PE space and further deploy the significant amounts of dry powder that exist. Real estate is believed to be an area where management teams expect to deploy more capital opportunistically.
The Era of AI and Digital Transformation
According to KPMG, a recent survey of executives indicated that a majority are already seeing the genAI impact within their organizations. 71% of respondents indicated their firms are already leveraging data in decision-making. 83% believe that genAI investments will increase over the next three years, with positive ROI expected to deliver in that timeframe.
Undoubtedly, genAI continues to transform the way the investment space is doing business. It has transformed how teams operate cross-functionally, enhancing automation capabilities across research, due diligence, reporting, back-office operations, sales enablement functions, and even through product offerings such as robo (automated) investment advisers.
Some of the key generative AI use cases in financial services include:
- Financial Reporting: Automate financial reporting with genAI algorithms to generate accurate and comprehensive financial reports, saving time and reducing the chance of human error.
- Earnings Analysis: Training models on historical earnings reports enables genAI algorithms to produce insights and predictions about future earnings to help drive informed investment decisions and identify potential opportunities.
- Market Research: GenAI tools can be used when conducting market research to analyze large volumes of market data, predict market trends, analyze customer preferences, and perform competitor analysis.
- Finance Planning: GenAI can analyze financial data to generate accurate forecasts, providing insights into future financial scenarios.
- Risk Assessment and Management: GenAI can play a crucial role in risk management by teaching algorithms to generate risk models and identify potential risks, helping to assess and mitigate risks, improve decision-making, and ensure operational stability.
- Performance Management: By analyzing performance data of financial products or portfolios, generative AI algorithms can generate insights and recommendations for optimizing performance.
Equity Markets Rally Amid Ongoing Fluctuations
According to a Morningstar report, U.S. equity markets have rallied 28% since October 2023. This has resulted in lifted valuations and improvement in fund flows. While these gains have benefitted both traditional and alternative asset managers, ongoing volatility and speculation on regulatory course remain.
Markets continue to fluctuate and produce mixed results on the heels of “conflicting economic signals” and ongoing speculation about the Fed’s outlook. Factors driving conflicting sentiment include questions around US currency strength and stability, moderate but persistent inflation figures, and shifting unemployment figures.
It is expected that moderate inflation will give the Fed due cause to cut rates consistently over the next couple of years, which will in turn provide a stable environment for equities to see additional gains.
Asset managers will continue to be at the mercy of favorable market conditions to bolster returns for their strategies. With lingering economic fluctuation for the foreseeable future, time will tell how market events such as Fed meetings and the upcoming election will set the tone for the remainder of the year into 2025.
The Ongoing Active vs Passive Management Battle
Actively and passively managed strategies have gone neck and neck for the better part of the last decade, though passively managed formally took the lead earlier in the year. According to a Cerulli Associates report, “passively managed ETF flows outpaced those of actively managed by $100 billion.”
Active strategies are managed by an investment team of portfolio managers and analysts that carry out research, buy/sell decisions, and due diligence functions with the goal of outperforming a benchmarked index. Passive strategies, on the other hand, track, mirror, and replicate a particular index. As such, actively managed portfolios come with a fundamentally higher price tag compared to their passive peers that often cost a fraction of the basis points. And yet active management has historically outperformed passive management.
In a Morningstar Equity Research report sourced from the AlphaSense platform, analyst research finds a confluence of several issues—poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel—that has made it increasingly difficult for traditional asset managers running predominantly active portfolios to generate organic growth.
Fee compression continues to throw fuel on the competitive fire, with experts taking note of the trend. In broker research originating from the AlphaSense platform, it is observed that industry-wide fee compressions and the move to passive management have put ongoing pressure on active managers, with average fees in US equity mutual funds almost halving over the 10 years up to 2023 from 0.74% to 0.42%.
Additionally, the product mix continues to evolve with active non-transparent ETFs gaining popularity among investors. Active non-transparent ETFs trade like regular ETFs, but their holdings are disclosed on a quarterly basis, not daily. They offer the attractiveness of active investment style and are designed to protect against “copycat” risk as part of their modified disclosure schedule.
Gain a Competitive Edge With AlphaSense
To stay ahead of the topics and trends making the greatest impact on the asset management landscape in 2024 and beyond, you need a trusted resource that delivers intelligence and insights with the speed of the changing market.
AlphaSense’s market intelligence platform stands out from the rest with an extensive universe of content layered with AI search technology. Access thousands of premium, public, private, and proprietary content sources—including broker research, company documents, expert calls, earnings call briefings and more—in seconds, for the most comprehensive due diligence and informed decision-making.
Our cutting-edge features enable you to sift through the noise and accelerate your research:
- Smart Synonyms™ is the backbone of the AlphaSense search engine, expanding keyword and thematic searches beyond exact-match documents to include all relevant results and filtering out the noise
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Discover why 80% of the top asset management firms choose AlphaSense, and see how you can transform your workflow and leverage the insights and trends that matter.
Financial Research Leader
Barb is a Financial Research Leader covering the financial services segment at AlphaSense. Previously, she managed the content program at a global financial services firm.
Read all posts written by Barbara Tague
