The latest edition of the Boston Consulting Group’s (BCG) Global Asset Management Report provides a stark portrait of today’s asset management industry. Despite a robust 12 percent growth in global assets under management, reaching a formidable 120.000 billion dollars in 2023, the sector faces significant headwinds. Rising costs, eroding revenues, and the fading allure of traditional asset management approaches paint a troubling picture.
The report outlines a clear verdict: Asset managers must urgently innovate to maintain their competitive edge and profitability. At the heart of BCG’s strategic solution is the bold embrace of artificial intelligence (AI). According to BCG, technology is developing rapidly, and asset managers that do not start their journey now risk falling behind. This warning is especially pertinent in an industry where revenue growth was a paltry 0.2 percent in 2023, sharply contrasted by a 4.3 percent rise in costs and an 8.1 perfect drop in profits.
The necessity for a technological overhaul is underscored by the changing preferences of investors who are increasingly gravitating towards cheaper, passive products. Indeed, passive investments attracted 70 percent of total net inflows into global mutual funds and ETFs in 2023, amassing approximately 920 billion dollars. This shift underscores a broader market trend favoring lower-cost investment options and places additional pressure on traditional revenue models that have, since 2006, heavily relied on growing market valuations—a strategy now jeopardized by rising interest rates and aggressive anti-inflationary measures by global central banks.
Launching new products is harder now
Further compounding the industry’s challenges is the need to continuously innovate with new products in an environment where the lifecycle of mutual funds is dwindling—only 37 percent of mutual funds launched in 2013 were still active in 2023, down from 60 percent of those started in 2010.
BCG proposes a strategic recalibration focused on what it calls the “three Ps”: productivity, personalization, and private markets. The consultancy firm asserts that AI is pivotal in achieving these goals. AI can enhance productivity by streamlining decision-making and operational processes, facilitate the creation and management of personalized portfolios at scale, and even refine customer engagement.
Moreover, AI’s potential extends into the lucrative private markets, where it can significantly reduce the time needed to prepare investment memos by approximately 30%. This not only speeds up the investment process but also enhances the efficiency of dealing in a market segment known for its complexity and high entry barriers.
Escalating fee pressures
As asset managers face escalating fee pressures and the imperative to differentiate themselves in an increasingly saturated market, AI stands out not just as a technological enhancement but as a fundamental pillar for future survival and success.
The BCG report makes it abundantly clear: for asset managers, the time to act is now. Delaying the integration of AI technologies risks not only falling behind but also failing to meet the evolving demands of the market. The path forward for the asset management industry is unmistakably digital, and AI is the key to unlocking new realms of efficiency, customer satisfaction, and market leadership.