Rebooting the global asset management industry

46 Rebooting the global asset management industry Growth Engines Are Likely to Remain Somewhat Muted A fog of uncertainty has descended on the investment landscape, as the U.S. seeks to reshape the current global trading and financial architecture. From an asset allocation standpoint, the end-game remains unclear. Taking a three-year forward view, the key theme emerging fromour survey is one of higher volatility and wider return dispersion across asset classes, styles, sectors and geographies. The scope for policy mis-steps is significant while the institutional capability to minimize their impact on the global economy is limited. This subsection provides a snapshot of the likely asset class and regional growth engines. Taking themin turn (Figure4.3, upper panel), the only stand-out is alternative investments inprivate market assets (81%). Some see themas themain beneficiary of the democratizationprocess as the wealth transfer fromtheBabyBoomers progresses apace. Some also see these assets as credible sources of diversification: private equity and venture capital for high returns; privatedebt for good returns and inflationprotection fromits floating rate structure; infrastructure and real estate for capital growth, regular cash flowand inflationprotection. On the flipside, however, there is ample recognition that thestellar returnsfromthealternative investments of the recent pastmaywell be in the rear-viewmirror. The level of ‘dry powder’ – capital allocated but not invested until the time is right – lately reached an all-time high, as per data from the Global M&A Trends for PrivateCapital 2024Outlook . This implies that the newwall ofmoneymaywell see adilution of returnswith thedeclining opportunity set. Traditionalmajorassetclasses likeequitiesandbonds will continue to attract muted interest because of the uncertainty around how the current tit-for-tat tariff disputewill playout eventually. For somesurvey respondents, therewerealreadyquestionmarksabout U.S. equities, giventhat theywere flirtingwithhistoric highsevenbefore thedispute. Yet, other respondents continue to see equities in general andUS equities in particular as a key pillar of diversification. Similarly, theyhaveanopenmindaboutbonds (38%). Somerespondentsbelievethat theU.S.anditstrading partnersmight well seek to reflate their economies with budget deficits and let real interest rates rise, causing falls in the value of fixed couponbonds. Yet, respondents see sovereign bonds as safe havens in current turbulent times. That has also reduced interest in commodities anddigital assets, whichare too volatile and require goodmarket timing skills. The scope for policy mis-steps is significant while the institutional capability to minimize their impact on the global economy is limited. Figure 4.3 Taking a three-year view, what will be themost likely growth engines in the global asset industry? Source: Citi/CREATE-Research Survey 2025 % of respondents Geographies North America Europe Emerging markets (exc. China) Middle East and Africa China Australasia LATAM Asset classes Alternative investments Equities Bonds Commodities (inc. gold) Digital assets (inc. crypto) 44 81 38 21 21 53 51 48 39 38 22 16 “In the trade war, China could potentially spark a financial meltdown by selling U.S. treasuries and cause wrenching collateral damage.” “In1994, only15%of assetshadtobe risky to achieveanannual returntarget of 7%. In2024, thathadshotup to96%.” Interview Quotes