Market performance ignited the asset management industry in 2024, with global AUM rising to a new record of $128 trillion, up 12% year-over-year.
But a new report from BGC warns that, with asset managers deriving 70% of their $58 billion revenue growth from the buoyant markets rather than investor inflows, transformation is needed to ensure competitiveness and to reduce vulnerability to external conditions.
Business models are being redesigned in response to pressures from fee compression, investor preferences, and digital disruption.
“The winners of the next decade will not be those who simply weather the storm, but those who redefine their future direction,” said Dean Frankle, BCG managing director and partner and a co-author of the report. “Recent market volatility could serve as a catalyst for change, and asset managers will need to shift from recovery mode to innovation mode—rethinking how they deliver value, engage clients, and run their businesses.”
The report identifies several forces that are reshaping the asset management industry.
Firstly, seizing the opportunity to take a larger share of a shrinking pool of actively managed assets. This will focus on offerings of ETFs, model portfolios, and SMAs. For ETFs specifically, the lower fees for actively managed funds compared to mutuals are attractive to investors and 44% of all ETFs launched in 2024 were active.
Retail access to private assets is another major opportunity but requires overcoming regulatory hurdles, addressing product design complexity, and expanding investor education.
BCG also highlights the need for strategic partnerships and M&A in the asset management industry. Those firms managing larger AUM can streamline operations and efficiencies to reduce costs, while smaller firms (less than $300 billion AUM) will need to work with leaner models.
Cost is key and the use of AI will help with savings through process automation and product delivery.
“Cost discipline is now strategic,” said Renaud Fages, a managing director and partner at BCG and a co-author of the report. “Winning firms are asking tough questions about where they can create unique value and where they must be radically lean. They will also double down on strategic technology initiatives that have transformative potential.”
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