Leading Trends in Asset & Wealth Management
Asset & Wealth Management Outlook
The year has seen a consistent pattern of market volatility and uncertainty, presenting both challenges and opportunities for stakeholders and investors. The Asia Pacific region is witnessing a substantial increase in Asset & Wealth Management, with global Assets Under Management (AUM) projected to reach USD 171.3 trillion by 2028.
The Asset & Wealth Management industry is under growing pressure from investors, regulators, and society due to shifting macroeconomic conditions and geopolitical tensions, accelerating Asset & Wealth Management transformation, necessitating managers to innovate, adapt to investor segmentation, and enhance customer experience by utilizing technology, implementing innovative strategies, and fostering an environment that values openness and continuous progress.
Leading Trends in Asset & Wealth Management
A detailed analysis of the Asset & Wealth Management sector in 2024 can be summarized by the following trends, as a reference for stakeholders to adjust their strategic priorities and drive innovation, thereby fostering industry advancements.
- Rising wealth accumulation and transfer between generations in the Asia Pacific
- The continued progress and influence of private capital
- The emergence of multi-asset strategies and the evolving distribution landscape
- Ongoing enhancement of business operating models
- Asset managers’ evolving importance as fiduciaries and in building investor trust
- Changes in the Asset & Wealth Management industry due to fund tokenization
- Driving force of Generative Artificial Intelligence (GenAI) for industry participants
- China’s continuous development and growth
- The watershed in Mergers & Acquisitions (M&A) and transaction activity
- Human capital as a crucial element of success
Rising wealth accumulation and transfer between generations in Asia Pacific
Asia Pacific’s economic growth presents unique opportunities for wealth accumulation and preservation, with evolving financial systems and legal frameworks. The Asia Pacific region has seen significant wealth creation due to economic growth, industrialization, urbanization, and technological advancements. Wealth hubs are emerging, driven by High-Net-Worth Individuals (HNWIs), Ultra-High-Net-Worth Individuals (UHNWIs), and multigenerational family networks, impacting institutions, families, and individuals.
Family offices are crucial for managing family wealth through philanthropy, estate planning, tax strategies, and investments, shifting towards alternative investments for larger returns, promoting innovation, digitization, and start-up ecosystem growth in developing industries and private markets, with institutionalized offices expected to grow as families seek expert teams.
Understanding future wealth owners’ needs is crucial for regional stability and financial legacies. The younger generation’s changing objectives and expectations necessitate the integration of disruptive fintech into investment products, platforms, and performance data to address wealth transfer challenges, prioritizing investing principles focusing on ESG, Fintech, digital platforms, diversification, new asset classes, and emerging sectors, influencing investing and charity.
The continued progress and influence of private capital
Private capital is transforming global financial markets, attracting investment and addressing social issues. Traditional asset managers are reshaping sectors, while private credit managers support disadvantaged companies. Positive macroeconomic changes in the Asia Pacific drive growth and private capital investment, necessitating significant financial outlays, with Southeast Asian markets shifting focus to private capital and cross-border providers.
Private lending is crucial for SMEs, early-stage startups, and family-owned businesses as government policies strengthen development targets and investment climates, fostering economic growth. Private credit funds are integrating ESG factors into their investment strategies to align with international norms and investor expectations, enhancing transparency through improved disclosures on ESG measures.
Climate hazards drive infrastructure investment, requiring resilient systems. Rapid urbanization and megacities increase demand for infrastructure, presenting opportunities for lenders and private investors. Private capital markets are becoming more intricate, facilitated by cooperative initiatives that allow global players to strengthen regional ties, share risks, and participate in intricate transactions.
The emergence of multi-asset strategies and the evolving distribution landscape
Asset and wealth managers are adopting multi-asset techniques to meet investor demand for diversification and customization, launching solutions through strategic alliances and Mergers & Acquisitions (M&A), resulting in industry consolidation. Private asset firms globally are expanding their clientele to mass affluent, HNWIs, and UHNWIs investors, potentially raising substantial capital despite new regulations and operating methods.
Asset managers are diversifying their portfolios to address fee and margin pressures on mutual funds and Exchange-Traded Funds (ETFs), acquiring and combining companies from various asset classes. Traditional asset managers are expected to explore private markets in the future, synergizing asset types, influencing energy sources, and expanding their skills across both public and private markets.
Technological advancements and asset managers’ efforts are making private market assets more accessible to a wider range of investors across various jurisdictions, transforming distribution, leading to a reassessment of goods and services, with robo-advisors (which are digital platforms that provide automated, algorithm-driven financial planning and investment services with little to no human supervision) and digital wealth advisers presenting new value propositions, posing challenges for banks and insurance companies.
Ongoing enhancement of business operating models
Asset and wealth managers are leveraging advanced technologies to grow and reduce costs, adapting to changing investor expectations and expanding operations to meet new customer needs. Asset and wealth managers must regularly review and improve their operational strategies to stay competitive in a rapidly changing market, meet new demands, streamline operations, and provide better investor results.
Asset and wealth managers must develop a customized operating model to ensure efficiency, investor satisfaction, and successful investment management, varying based on the firm’s size and expertise. Outsourcing specific tasks or value chain segments is gaining popularity for streamlined operations and investment management, improving productivity, adapting to investor demands, and enhancing overall business performance.
Asset and wealth managers can enhance industry efficiency by creating an integrated operational model that optimizes front, middle, and back office operations, enhancing flexibility and responsiveness to market changes. Asset and wealth managers can improve decision-making, reduce operational silos, and boost performance by promoting collaboration, risk management, and securing opportunities at various levels of the value chain.
Asset managers' evolving importance as fiduciaries and in building investor trust
Asset and wealth managers’ fiduciary responsibilities are expanding due to global dynamics, regulatory scrutiny, and investor expectations, with global Assets Under Management (AUM) of nearly $130 trillion. Asset managers promote investor inclusivity by offering diverse products and democratizing alternative assets through technology, fostering financial empowerment, and enhancing the financial market’s resilience.
The industry is undergoing fee reform to improve transparency, reduce expenses, align payments with management performance, and remain competitive by lowering costs due to low-cost investing options. Investor education is crucial in complex financial markets, equipping investors with skills to understand investment products, market dynamics, and risk management techniques, fostering investor trust.
Governments in the Asia Pacific leverage private capital for growth financing, funding infrastructure, urban development, and sustainability projects. Policymakers promote diverse financing, incorporating ESG factors, and transforming company structures for a more informed investment environment. Rising life expectancies and aging populations are accelerating the pension gap, leading to increased retirement needs and increased financial asset allocation in the Asset & Wealth Management sector, including efficient long-term savings management.
Changes in the Asset & Wealth Management industry due to fund tokenization
Fund tokenization is a blockchain-based process that generates digital tokens representing ownership units, regulatory status, transaction history, and underlying asset characteristics. Fund tokenization is revolutionizing global financial markets by transforming traditional assets into digital ones, enhancing liquidity, transparency, investment accessibility, and reducing operational expenses.
Asset and wealth managers in Asia Pacific are adopting tokenization, requiring specialized knowledge to navigate technical challenges and infrastructure requirements for digital asset transformation. Tokenization reduces product prices, increases transparency, expands distribution channels, improves investment liquidity, streamlines operations, democratizes alternative investments, and automates processes, eliminating middlemen.
Blockchain technology can improve regulatory compliance in Anti-Money Laundering (AML) and Know Your Customer (KYC) systems, ensuring banks verify client identities during account opening and periodic updates. Tokenization and fractionalization of alternative assets like infrastructure, real estate, and private equity, can reduce illiquidity barriers and regulatory restrictions, allowing smaller-scale transactions and increased investor pool.
Driving force of Generative Artificial Intelligence (GenAI) for industry participants
Asset and wealth managers are exploring the use of Generative AI (GenAI) and Large Language Models (LLMs) to enhance investor satisfaction and streamline internal processes. GenAI is integrating with automation, blockchain, and cloud technologies to enhance product customization, decision-making, and corporate operations in the digital revolution.
Businesses should offer staff training on integrating GenAI into daily tasks, fostering innovation. GenAI can improve Asset & Wealth Management by automating regulatory reporting, anomaly detection, and data analysis, but requires localization and international best practices. Risks include data security and intellectual property infringement. Transparency and accountability are crucial for AI-driven decision-making.
GenAI systems’ ethical standards and regulatory requirements are crucial for building industry relationships and promoting sustainable innovation development, as adoption requires cross-collaboration across the industry value chain. GenAI can be utilized by asset and wealth managers to summarize regulatory guidelines, search large financial documents, transform data into comprehensible charts, enhance customer profiles, provide personalized advice, and create financial newsletters.
China’s continuous development and growth
The Chinese Mainland’s growth potential is attractive for asset and wealth managers, but regulatory developments and liberalization aim to attract foreign investment, creating both headwinds and tailwinds. Hong Kong’s “Connect Schemes” and other market efforts enable financial product distribution in Chinese Mainland regions, promoting foreign businesses’ strategies and enhancing investor penetration, resulting in significant progress.
The Chinese Mainland’s 1.4 billion population, with a 47% savings rate, attracts a diverse range of foreign market participants due to its large savings pool, making it an attractive investment destination. International firms can capitalize on Mainland Chinese investors’ growing market, focusing on financial literacy and diversification, with younger generations prioritizing wealth building and older generations preserving it.
The Chinese Mainland’s wealth pool is expected to grow due to the number of HNWIs and UHNWIs, and a new generation of business owners and entrepreneurs, who are seeking new investment destinations and diversifying their portfolios, particularly in Hong Kong. Global actors face risks in shifting geopolitical tensions, requiring foreign businesses to consider long-term resilience when adjusting their Chinese Mainland strategy. Key factors include vision, goal, strategy, stakeholder connections, onshore product competency, and distributor partnerships.
A watershed in Mergers & Acquisitions and transaction activity
M&A activity may rise amid market challenges, as industry participants adapt business models, borrowing rate reductions, and macroeconomic changes drive industry recovery. Assets & Wealth Management sector consolidates due to margin compression, profitability issues, and technology challenges. Managers must enhance internal efficiencies and explore M&A for scale and experience.
Factors such as product, distribution, geography, and technology are driving M&A growth. Businesses seek strategic alliances to increase income and access new asset classes. Digital service offerings, advanced technologies, and wealth growth attract new sectors. Traditional asset managers are focusing on private markets to expand their product range and increase income through performance-based and management fees. The Asia Pacific deal market is becoming more competitive, with banks and insurers strengthening their Assets & Wealth Management businesses.
The changing corporate climate is driving increased M&A activity, with 16% of organizations predicted to be absorbed or abandoned by 2027, doubling turnover rates. M&A transformation involves enhancing product and distribution capabilities, promoting technology, and recalibrating business models, while asset managers seek value generation and capitalize on investment opportunities.
Human capital as a crucial element of success
The Assets & Wealth Management industry relies heavily on human capital, including employee skills, knowledge, and interpersonal relationships, for organizational performance and resilience in the face of changing market conditions.
The complexity of financial markets necessitates a workforce that can adapt and innovate, requiring a holistic approach to personnel management beyond hiring top talent. Building a resilient workforce requires continuous upskilling, diverse work environments, individual and team accomplishments, technology integration, and corporate social responsibility in commercial strategies.
The technology sector is revolutionizing asset and wealth management strategies, requiring employees to adapt to AI, machine learning, big data analytics, and robo-advisors. Human capital is increasingly crucial in decision-making, client interaction, and technology use, necessitating industry stakeholders to prioritize training and development, as technical innovation and human capital shape the Asset & Wealth Management sector.
