Rebooting the global asset management industry

Rebooting the global asset management industry 17 Theme 6: Winning Models Will Combine the Best of Old and New In light of the identified change drivers, the winning business models in the asset management industry will rely on a pragmatic mix of doing old things better alongside new things, as set out under two subheadings (Figure 1.6). Taking them in turn, winning models envisage asset managers moving from aggressive product push to meeting clients’ unique needs. As active managers continue to face headwinds from the rise of passive funds, the old fund charges based on fees as a fixed proportion of assets under management will likely continue to be replaced by a low base fee and a performance fee based on the preset hurdle rate (59%). Furthermore, client centricity is likely to be newly enhanced with the rise of personalized portfolios and improved client experience facilitated by the rising adoption of AI and GenAI (57%). Another area under doing old things better is likely to be the continuing advance towards outcome-oriented investing, especially ESG funds outside the U.S. (55%). Like passive investing, ESG is seen as a foundational trend. The risks it aims to tackle haven’t gone away with the political backlash it has suffered lately. If anything, climate risks are worsening due to political backpedaling. Moving to the rise of platforms (Figure 1.6, lower panel), it is likely to be centered on fledgling channels that are likely to revolutionize the way asset products are packaged, distributed, democratized and charged. Such platforms mark a radical departure from how things are done currently. Five platform types have been singled out as promising. Using AI, GenAI, cloud computing, and blockchain technologies, they aim to: democratize private market assets via fractional ownership (67%); blend diverse investment strategies at the point of sale (56%); bypass intermediaries via proprietary D2C access (49%); offer turnkey asset solutions under white label (39%); and extend fractional ownership to all liquid assets (27%). Platforms mark a radical departure from how things are done currently. Figure 1.6 What will be the key features of the winning business models over the next three years? Source: Citi/CREATE-Research Survey 2025 Client-centered % of respondents Platform-centered Performance-based fees & charges Portfolios personalized by technology Outcome-oriented products Asset products integrated with other services Democratized access to private markets Diversity of multple strategies Direct-to-consumer (D2C) access White-label turnkey solutions Fractionalization of liquid assets 59 57 55 16 67 56 49 39 27 “The heads-I-win, tails-you-lose fee structure is under critical scrutiny, as our clients want a more equitable sharing of pain and gain.” “The rise of platforms is one of the durable trends in asset management, aided and abetted by technology.” Interview Quotes