For years, asset managers could count on rising assets under management to drive profitability. That dynamic has changed.
Jun Li, EY Global and Americas Wealth & Asset Management Leader, explains that “AUM growth used to be the rising tide that lifted margins. Today, it’s being offset almost dollar for dollar by higher costs.”
In an interview with InvestmentNews he points to sustained reinvestment across the industry, noting that “asset managers are reinvesting heavily in talent, technology, compliance and new product development,” while at the same time “fee pressure continues to intensify as assets shift to passive and lower-cost strategies. Scale still matters, but margins are thinner and growth is harder to come by.”
“Scale remains important, but it’s no longer enough. What matters, ultimately, is how well firms are delivering on their core value proposition,” Li notes, adding that the firms that are pulling ahead are those that demonstrate flexibility and coherence in how they operate and present themselves.
“The winning firms are able to showcase how adaptable they are, how internally integrated and externally networked they are, and how effective they are in communicating their core brand strategy,” he explains. “Clarity beats complexity.”
Artificial intelligence is often cited as a potential solution to margin pressure, but Li notes that meaningful transformation has been slow.
“The biggest barriers are legacy systems, fragmented data, and a lack of clear strategy. Many firms are stuck in pilot mode, struggling to move from isolated use cases to enterprise-wide impact,” he says. “Uncertain ROI, evolving regulation and skills gaps add further friction. The firms that break through focus on a small number of high-impact use cases, invest in the right foundations and bring their people along on the journey.”
But the adoption of AI is not even across the world with asset managers in Asia-Pacific and EMEA moving at a slower pace than US peers.
Looking ahead, Li sees several distinct growth opportunities rather than a single dominant theme, citing private markets, private wealth, and digital assets as powerful growth engines but for different reasons.
“Private markets continue to attract capital because of their resilience, despite market volatility and geopolitical tensions, and return potential. Preqin forecasts a strong growth trajectory, with global alternatives AUM surpassing $30tn by 2030,” Li says. “We will continue to see asset management firms make structural realignments and changes, via M&A and vertical integrations, new partnerships, or building in-house capabilities, to maximize growth in private markets.”
On private wealth, expanding access to alternatives through product innovation and new distribution models is key. “Demand for retirement-friendly products will be a new paradigm for growth as alternatives find a way into retirement accounts,” Li says.
He also notes that digital assets and tokenization could be a long-term disruptor for the asset management industry, taking up more space in individuals’ portfolios as regulation and infrastructure mature. According to an EY-Parthenon and Coinbase survey, the percentage of respondents that engage with decentralized finance is set to triple in the next two years, from 24% to 75%.
Despite ongoing cost pressure, Li emphasizes that firms continue to invest in people.
“Many asset management firms are investing heavily in specialist talent in areas like AI, data and private markets, which is seen as a value driver, not a cost,” he says. To balance these investments, firms are also rethinking how they source talent. “Many managers are rethinking location strategies and tapping global talent pools to enhance strategic capabilities while managing costs.”
When asked what matters most for asset managers over the next several years, Li returns to the importance of deliberate change.
“Asset managers need to be proactive and intentional about transformation,” he says. The firms best positioned to succeed, he explains, “have a clear view of where they want to get stronger, where they are willing to change, and where they will step back.” In an increasingly unpredictable environment, Li concludes, “success will come from planning for multiple futures and building the flexibility to pivot quickly when the market shifts.”
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