Rebooting the global asset management industry

12 Rebooting the global asset management industry Theme 1: New Challenges Are Coinciding with New Opportunities In this decade, the asset management industry has faced strong structural headwinds, as revealed by various data points on the internal and external contributory factors covered in Section 2. They show that, on the internal side, new net inflows have beenmostly going tomega players (63%). Passive funds have continued their steady rise (61%). Fee compression has been accelerating (57%). Costs have been rising faster than revenues (52%). Market performance has been the key driver of top-line growth (50%). Alpha generation has proved hard, with unfamiliar risks from Covid-19, the Russian invasion of Ukraine and the resulting spike in inflation (48%). As if that were not enough, new external factors have emerged alongside to drive up costs. End-clients have been demanding new products, especially in the ESG space (45%). Digitally savvy self-directed investors need superior tech-enabled client experience (42%). Tighter regulatory oversight has come with the personalization of risk (44%). Thus, a rare confluence of these multi-faceted factors has driven the industry to an inflection point at which the future may begin to be very different to the past. That scenario is being supported by the parallel emergence of three sets of new interlinked growth drivers (Figure 1.1). The client base is likely to be more retail oriented with the intergenerational wealth transfer (59%). This will be reinforced by policy moves in Europe to redirect low-interest bank deposits into investment funds with better return potential (54%). The newer investors are likely to be digitally savvy (45%). Meeting their asset preferences will likely drive the democratization of private markets (67%) and/or hybrid investment solutions (54%). Both are seen as good diversification plays with the rise of geopolitical risks (59%). In response, operating models are likely to see further shifts towards industry consolidation via M&A (64%), adoption of AI and GenAI (61%) and the ongoing outsourcing of non-core activities in pursuit of operational excellence (54%). A rare confluence of these multi-faceted factors has driven the industry to an inflection point. Figure 1.1 What factors, if any, will drive the organic growth in your business over the next three years? Source: Citi/CREATE-Research Survey 2025 Client segments % of respondents Asset allocation Operating model Huge intergenerational wealth transfer Regulators converting savers into investors Rise of digitally savvy investors Democratization of private markets Geopolitical risks Hybrid investment solutions Further industry consolidation Advance of AI and GenAI Operational excellence via outsourcing 59 54 45 67 59 54 64 61 54 “Before long, the new growth drivers could potentially transform the asset industry as we know it.” “Operating models will likely need a makeover as the old ways of working cannot meet the needs of newer clients.” Interview Quotes