Tech-led focus areas for asset managers preparing for opportunities and challenges in 2025

High-net worth individuals and the mass affluent continue to accrue wealth – research suggests this as a major growth factor in the Asset & Wealth Management (AWM) industry. In fact, the overall assets under management (AUM) are expected to approach US$171 trillion by 2028, rebounding from an all-time low in 2022.

However, a 2023 report had indicated that only the biggest 10 of all asset managers are expected to retain power over 50% of the total mutual fund assets, globally. 16% of existing asset and wealth managers were likely to fold or become part of larger groups by 2027. Their survivability is a factor of how well they can digitally transform and adapt to evolving investor demands amid impending consolidation.

This brings sharp focus on the most pressing challenges of modern-day asset management – how to achieve returns amid socio-economic and inflationary pressures, market volatility, and dwindling of growth areas – going into 2025.

In this, the role of technology –traditional and generative AI, robo-advisors, etc. – is crucial. Today, technology is not just elevating back-office efficiencies but also promises to positively impact customer engagement and revenue growth by accelerating innovation potential.

Asset and wealth managers stand to not only survive but stay competitive by being able to transform their customer engagement and asset management strategies – with technology.

Technology’s helping hand in new growth opportunities for asset managers

As the year unfolds, so will new opportunities and hindrances that determine key priorities and focus areas. Asset and wealth managers must adapt with twin goals: grow and differentiate where possible and keep costs at bay.

This means re-strategizing in terms of not just portfolio management and investor relations but also their tech implementation roadmap. As cost is always an important consideration, channeling their technology investments into the right focus areas makes business sense.

Areas of opportunity include:

Growth via diversification of portfolios

Alternative investments are gaining traction as asset managers eye private asset classes, new investor segments and geographies in their quest for higher returns. The portfolio allocation to alternative opportunities – private equity, private debt, real estate – Is expected to climb significantly. More than 75% of alt asset managers responding to this 2023 survey acknowledged its role in meeting client targets; nearly 60% asserted how it unlocks new prospects.

Nonetheless, financial advisors can be deterred from going ahead with these alternative investments due to excessive administrative and documentation efforts, intense due diligence, and regulatory scrutiny. AI-based tools help, driving intelligence-based actions for everything from monitoring, predictive analytics, and market forecasting to portfolio risk assessments, extensive financial health reports, and personalized recommendations to individual investors.

Using robo-advisors and automation in investment management minimizes the dependency on human decision-makers, who can focus on fine-tuning their portfolio management strategy to market and investor needs. Generative AI helps compile company-specific analysis, sum up quarterly reports, conduct and document transactions, and produce quick drafts of reports required for taxation and regulatory compliance.

Overcoming the dilemma of ESG-led investing

Driven by investors hankering for alternative asset choices, the hedge fund industry within asset management is expected to make steady growth and reach about $5 trillion in 2025.

A growing community of investors is also drawn to ESG-centric portfolios and sustainable, responsible practices. Regulatory mandates also require investment management companies to implement sound frameworks around ESG performance assessments and reporting. However, alignment with sustainability goals does not always guarantee higher returns on these portfolios.

Portfolio managers are under pressure to ensure steady returns while also allocating ESG-focused investments in line with specific investor demands.

Under these circumstances, they need to ensure transparency and stronger reporting capabilities besides offering high degrees of personalization. They are turning to AI, advanced data analytics and cloud that allow them access to more sources of intelligence like social media feeds, sentiment analyses, satellite data. These insights not only help decision-making but also open up more alpha-generation avenues that eluded them in traditional methods.

Encashing on the crypto trend

Meanwhile, the Ether exchange-traded fund (ETF) became the first of its kind to be green-lit for trading by the Securities and Exchange Commission in the United States. As this ranks second among the biggest virtual currencies globally, the SEC’s approval signals heightened interest in crypto among asset managers and investors.

Riding on the crypto trend, digital assets are garnering the attention of tech-savvy individual investors as well as the more traditional institutional investors as an avenue of diversification. A significant proportion (70%) of asset managers besides institutional investors anticipate a greater number of funds around digital assets from traditional players. Armed with AI and sophisticated algorithms, financial advisors have the opportunity to custom-build products and portfolios that are more likely to interest this investor segment.

Tokenized investment funds, which serve as security tokens, are also finding takers in the asset management community, driven by rising investor demand. It allows them to diversify portfolios by including a mix of traditional funds that have been tokenized, as well as digital assets. Tokenization implies conversion of a traditionally owned fund like a private equity fund into crypto-assets and held as security.

Studies corroborate this, including this recent survey which revealed 5% of institutional investors had invested in tokenized funds; another 13% mean to invest in them within the next 12 months. Tokenized fund AUM presents a positive outlook with another study predicting it will account for approximately 1% of the overall global mutual funds and ETF AUM within a short seven-year span.
Asset managers are also waking up to the long-term value of distributed ledger technologies (DLT) like blockchain in tokenized investment funds. Multiple advantages ensue – transparency and security of tokenized funds is higher compared to traditional funds owing to their use of DLT. Asset managers have the opportunity to explore new investor segments and build on existing ones by offering more personalized portfolio offerings using smart contracts.

These contracts also ensure immutable records of ownership and terms between stakeholders, including their legitimate rights, responsibilities, and limitations. All this information can be included on the security tokens. Regulators can be alerted to guardrail violations via these contracts and help protect investors’ interests better.

As asset managers and wealth managers pursue these multi-faceted opportunities for growth, the chance to do exceptionally well is becoming slim in an increasingly competitive market. Their ability to leverage emerging technologies and big data analytics will be instrumental in achieving market differentiation.

Why choose Decimal Point Analytics?

Navigating the modern complexities of asset management requires confidence and comprehensive solutions built on the latest data analytics and technological know-how.
Decimal Point Analytics offers a unique blend of technical expertise, industry knowledge, and cutting-edge technology to ensure that your fund management operations are streamlined and optimized. Here’s why our clients trust us:
Our full suite of services tailored to your needs from fund administration to portfolio monitoring. Our tools leverage the latest in analytics, automation, and reporting technologies to enable enhanced efficiency and data-driven decision-making. Backed by years of experience in the financial services sector, we understand the nuances of fund management and PE support. Therefore, our solutions are designed to grow with your fund – these are flexible and scalable offerings that adapt to your evolving needs.