Rebooting the global asset management industry

28 Rebooting the global asset management industry The Industry Value Chain is Likely to Be Recalibrated In light of the drivers outlined in the preceding two sections, the asset management industry’s value chain will likely see a mosaic pattern marked by three contrasting features: vertical integration, horizontal integration, and geographical divergence (Figure 2.4). Corporate mergers and acquisitions are expected to promote vertical integration (64%). They will likely target three goals. First , to acquire new capabilities to enter high-margin asset classes, especially in private markets. Second, to build scale in order to reduce cost pressures and offer competitive fees, especially in active public markets. Third, to fortify the market position and the brand so as to promote strategic partnerships with other players in the value chain. The next wave of M&A is likely to predominantly affect the overpopulated subscale European asset managers hit by rising margin pressures and the private markets where larger public market players will be gaining a toehold by acquiring specialist boutiques in order to increasingly offer diversified investment solutions that attract fee-related income (see Insights on the next page). Of course, inherent in scale is the risk of overreach. Crunching businesses together in a people-oriented industry like asset management has not been easy. However, the likely mainstreaming of AI and GenAI will help slimline the operating models by promoting greater centralization; thus, ensuring that, after the merger, the whole is greater than the sum of its parts (61%). The implied vertical integration is expected to coexist with horizontal integration. It will be boosted by the search for operational alpha: delivered by improving business excellence via outsourcing of front, middle and back office (54%). The key aimwill be to allow asset managers to focus on core areas where they can add most value, whilst outsourcing non-core activities by forming strategic partnerships with third-party service providers. Inherent in scale is the risk of overreach. Crunching businesses together in a people- oriented industry like asset management has not been easy. Figure 2.4 Which operatingmodel factors, if any, will drive changes in your business over the next three years? Source: Citi/CREATE-Research Survey 2025 % of respondents Further industry consolidation via M&A Advance of AI and GenAI Operational excellence via outsourcing Global regulatory convergence outside the U.S. Rise of D2C platforms (e.g. Robo Advisors) Divergencebetween theU.S. & the rest of theworld Rise of decentralized finance (DeFi) platforms Rise of real-time borderless capital markets Tech giants enter the asset industry 61 54 46 44 40 34 19 18 64 ”Nearly 20% of today’s asset managers will either no longer be active or be acquired by bigger players by 2030.” “Many asset managers think that if they are not at the top table, they’ll be on the menu.” Interview Quotes