Rebooting the global asset management industry

26 Rebooting the global asset management industry New Asset Allocation Imperatives Are Set to Drive Change On a three-year forward view, investors’ asset allocation is expected to undergo shifts that herald new opportunity sets for asset managers. They fall into two distinct clusters (Figure 2.3). The first cluster centers on illiquid private markets, covering private debt, private equity, infrastructure, real estate and venture capital. So far, these asset classes have long been the preserve of institutional investors, with long time horizons that enable them to harvest illiquidity premia. Private market assets will growmore than twice the rate of public assets, reaching $60-65 trillion by 2032, according to research by Bain & Company, Avoiding Wipeout: How to Ride the Wave of Private Markets (2024). Our survey respondents expect a big part of this growth to be powered by the democratization of the market (67%), as shown in Figure 2.3. Central to it will be tokenization that enhances product liquidity via fractional ownership that breaks up assets into much smaller units, making private markets more accessible to a broader group of investors. A major enabler will be blockchain (36%), with its distributed ledger that enhances the functionality, transparency, and security of digital assets. This new advance in private markets is occurring as ever more fast-growing companies are now in private markets and choosing to remain private for longer. The IPO process in key stock markets is seen as costly and their bureaucracy as onerous. Unsurprisingly, to expand their product line-up, traditional asset manager firms’ share of private market assets has increased from 16% in 2018 to 22% in 2022, according to Bain & Company. But that is not all. Today’s geopolitical risks are creating a new layer of uncertainty that is likely to persist until the end of the tariff dispute between China and the U.S. (59%). As a result, investors’ asset allocation is likely to blend opportunity and caution to achieve two aims. First, to secure a broad diversification of the asset base by blending hybrid investing styles such as private and public markets, developed and emerging markets, and liquid and illiquid hybrid solutions (54%). Investors’ asset allocation is likely to blend opportunity and caution. Figure 2.3 Which asset allocation factors, if any, will drive the organic growth in your business changes over the next three years? Source: Citi/CREATE-Research Survey 2025 % of respondents Democratization of private markets Geopolitical risks leading to regional blocks Hybrid solutions covering diverse styles Continuing rise of passive strategies Emergence of new investment themes ESGmerging with fundamental investing Blockchain integration Direct indexing targeting tax efficiency or ESG 59 54 53 52 43 36 34 67 “Markets are likely to remain more volatile than usual until the current geopolitical risks subside.” “Active management is finding a home inside the ETF wrapper in liquid markets.” Interview Quotes