A forward-thinking approach will be crucial for asset managers in 2025 as they navigate these transformative trends to unlock the industry’s potential, writes Piyasi Mitra.
In 2025, asset management is fully on a transformation trajectory with AI, blockchain, ESG shifts, and democratised private markets taking hold. The industry is tackling rising costs, evolving regulations, and retail investor challenges. Experts reveal how these changes reshape value delivery.
Generative AI could boost capital market efficiency—trading, investment and asset allocation—through automation and data analysis, with “early impacts already visible”, according to a report by the International Monetary Fund.
At the Investment Association’s (IA) Investment Horizons Conference held in December 2024, panellists too, stressed the need to leverage technology to remain competitive amid rising costs and changing customer demands.
Sonja Laud, global CIO of Legal & General Investment Management, articulated the need for technological integration. “Productivity per head has to go up […] and AI will need to be part and parcel of what you’re doing,” she said.
Similarly, Fabiana Fedeli, CIO at M&G Investments, stressed the role of robust data in the effective deployment of AI. She cautioned, “If you don’t have a strong data set […] any updated analytics is not going to help.”
Edward Park, chief asset management officer at wealth management and professional services group Evelyn Partners, highlighted AI’s role in delivering “high levels of personalisation at scale,” particularly in portfolio management and client engagement.
Jeffries’ equities researchers also highlight how AI is transforming asset management, from improving product development and data processing to enhancing portfolio monitoring, trade execution, and risk management. Thanks to AI, alternative managers too, are streamlining operations within their portfolio companies and investing in infrastructure, such as data centres and energy projects to support these advancements. Large language models are aiding quantitative and discretionary investing, while machine learning is already delivering noticeable improvements in trade execution and boosting returns.
PwC’s 2024 Global Asset & Wealth Management report echoes these findings, showing that 73% of asset and wealth management (AWM) firms plan to prioritise AI over the next 2-3 years, with 81% exploring strategic partnerships and mergers & acquisitions to expand their technological ecosystems.
Rising costs
According to the European Fund and Asset Management Association (Efama), operating profit margins dropped to 11.1 basis points of average assets under management (AuM) in 2023—the lowest level since 2008. Technology expenses have been a major contributor to this trend, driven by the “investments in new hardware, software, and data that asset managers need to remain competitive”.
Market data costs have more than doubled since 2019, driven by the growing demand for “ESG-related data and fees charged by stock exchanges for asset managers to access their market data”.
Despite challenges, Jeffries’ research estimates that AI could lower cost-to-income ratios in the sector by 300-600 basis points. Many asset managers are adopting internally developed AI tools alongside third-party solutions, to enhance efficiency and create new revenue streams. Firms like BlackRock and Amundi are even commercialising their proprietary AI technologies like Aladdin and Alto to generate additional income.
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85% of EU assets managed in six countries. UK led, followed by France, Switzerland, Germany, the Netherlands and Italy
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Retail AuM grew to 30.8% in 2023 (up from 26% in 2019).
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Passive management now holds a 17% market share.
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Operating margins dropped to 11.1 bps.
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Private markets expected to see 14% annual growth through 2028
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Foreign client share rose to 32.6% in 2023, dominating mandates over fund markets.
Source: Efama Asset Management Report 2024
Democracy through tokenisation
The democratisation of finance is emerging as a priority for asset managers seeking to expand their client base. This includes targeting younger investors with accessible, flexible investment options. Albertha Charles, PwC UK’s asset and wealth management leader, highlighted the role of blockchain-enabled tokenisation in this effort: “Tokenisation, powered by blockchain, allows fractional ownership of private assets like private equity and credit, making them more affordable and accessible to underserved markets, including mass affluent investors.”
Tokenised investment products are expected to grow from $40 billion in 2023 to $317 billion by 2028, reflecting a CAGR of over 50%, according to PWC data. To capitalise on these opportunities, firms are investing in education, talent development, and fintech partnerships to address skill gaps and navigate regulatory complexities, shares Charles.
UK & European competitiveness
The UK investment management industry reported a 3% rise in AuM to €10.6 trillion in 2023, with €2.5 trillion managed for EU savers, according to IA data. In 2024, reforms of listing rules in UK and EU markets streamlined regulation, boosting capital access, and it also estimates that private markets, worth $12 trillion globally, will be a key growth area for European infrastructure investment.
Improving pension adequacy and increasing retail investor participation remain top priorities for the UK and the broader European markets are at the top of the IA’s 2025 agenda. Although retail assets for IA members rose to 26%, only one in five UK residents holds stock and shares individual savings accounts. Addressing this gap is essential for supporting long-term financial resilience and economic growth, said Chris Cummings, CEO of the IA.
In Europe, financial policymaking is shifting from stability to “a growth agenda and simplifying regulation,” says Efama. The European Commission plans a rebranded “Savings and Investments Union” to integrate capital markets and boost long-term savings.
“We don’t yet know what this will include but they will certainly look at the simplicity and cost of products and distribution, pensions, fiscal incentives, financial education, investor protection, financial stability and post-trade infrastructure,” said Efama.
In 2025, the EU’s financial markets regulator and supervisor, the European Securities and Markets Authority, will evaluate potential consolidated tape providers to enhance access to EU market data. Additionally, industry and regulators will begin transitioning to a T+1 settlement cycle for equities by October 2027.
Efama outlines another trend for 2025: “We are experiencing lower long-term growth, higher inflation, higher interest rates, and increased volatility. These impact the asset management landscape, and we are seeing more consolidation.”
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Global growth: Global AuM grew 12% in 2023 to $119trn; Europe hit €29tn, with the UK holding 36% of the market.
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Overseas assets: UK-managed European assets rose 71% over a decade to £2.5trn.
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Europe’s AuM: Europe’s AuM grew from €28tn to €29tn in 2023 but remained flat in sterling at £25tn.
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Shrinking share: Europe’s share of managed assets fell from 59% in 2018 to 55% in 2023, indicating assets managed on behalf of clients from other regions are growing faster.
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Cash savings: EU cash deposits grew to €11.6trn in 2023, up from 40.6% to 42.1% of total savings.
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Stocks and shares ISAs: Only 1 in 5 UK residents holds a Stocks and Shares ISA; 2 in 5 lack confidence in opening one.
Source: IA
Megatrends in focus
Tech-as-a-Service (TaaS) is another trend enabling firms to access advanced technologies on a subscription or usage-based model, reducing upfront costs while enhancing capabilities, highlights Albertha Charles. PWC estimates TaaS could boost asset and wealth management revenues by 12% for early adopters.
While larger players can acquire or partner with start-ups to access talent and technology, speeding development and market rollout, Charles suggests smaller managers can leverage fintech, managed services, and TaaS to gain the necessary capabilities.
Shifts in ESG investing, such as underperformance and the oil price shock caused by Russia’s invasion of Ukraine, have prompted a move away from exclusionary practices to a more engaged approach with portfolio companies, as experts highlighted at the IA conference.
In the UK, Chris Cummings, expects the Sustainability Disclosure Regime to boost confidence in sustainable investing. While early projections suggested two-fifths of firms would apply sustainability labels to UK-domiciled funds, actual uptake has been slower, adds Cummings. The IA remains optimistic as global regulations align. He said the IA will offer insights during the EU’s review of its own sustainable disclosure regime, the SFDR.
Efama, too, anticipates a new ‘omnibus’ proposal that will amend other sustainability regulations – the Corporate Sustainability Reporting Directive, the Corporate Sustainability Due Diligence Directive, and the EU Taxonomy – alongside updates to SFDR disclosures.
Efama also expects European Long-Term Investment Funds 2.0 to boost cross-border distribution of alternative assets, particularly for retail investors. It is also the management sector’s responsibility to address demographic challenges, Efama adds. “Our sector has an important role to play when it comes to the ageing of the European population and the increasing pension gap.”
