“The asset management industry is in a time of reflection, revisioning, and regrowing.”
— Asset Management Industry Leader
The asset management industry is at a critical inflection point, with decisions made by its leaders poised to have lasting impacts on both the success of individual institutions and the broader financial landscape. Fortunately, many senior asset management leaders are already positioning themselves to drive the large-scale changes needed for their firms’ success. They are focusing on three primary areas: differentiation in the market, developing advanced leadership skills across teams, and establishing a clear vision and execution plan to navigate future industry cycles.
Differentiation: Determining Where to Play
Active equities remain a challenging space, with many leaders anticipating further consolidation. Differentiation in this segment of the market could come from focusing on concentrated, high-conviction portfolios and adopting quantitative investment approaches that scale effectively. For larger players, this means customization at scale. As one head of asset management put it, "We cannot be seen or perceived to be hugging a benchmark because we need to add value beyond that."
Expansion through alternatives continues to be a strategic focus. Firms with existing capabilities are exploring how best to integrate these products into their distribution channels, despite a challenging fundraising climate for many pure alternative players. Industry consolidation is expected to persist as firms navigate these complexities.
Advanced Leadership Skills Required: New Frontiers and Talent Wars
Transformational leadership is crucial for the asset management industry's future. "Any leader in the asset management industry who is not already focused on radically upgrading their skills as it relates to big data and AI will not be positioned to continue to effectively lead moving forward," a global CHRO said. The rise of AI and advanced analytics necessitates sales executives who are adept at using these technologies, fostering a culture of transparency, and embracing new business planning and performance management methods.
Additionally, aligning compensation with the industry's new realities remains a significant challenge. “My team needs to appreciate that the industry has enjoyed high margins in the past and this is no longer the case,” a CEO of an asset management firm said. “Compensation needs to reflect that, but it’s an ongoing struggle to get them to recalibrate their expectations.”
Growing an in-house alternatives franchise, especially in private credit and infrastructure, attracts strong interest but poses significant integration challenges. M&A can be costly, and organic growth is time-consuming, both running the risk of "organ rejection" due to differences in compensation structures and brand identity. As one global CIO noted, "Some products may be better off as a stand-alone brand after an acquisition.” The challenge for leaders is setting up the right governance and incentives to reap the envisioned synergies.
Operational and technological bottlenecks remain critical barriers to growth and consolidation. Penetrating the wealth segment, particularly in the U.S. and Asia, requires significant investment and a clear, appealing product offering. "The continued democratization of alternatives within the wealth channel is one of the biggest opportunities and challenges facing the industry," remarked one industry veteran.
Global managers are reevaluating their geographic footprints, with heightened interest in growth regions like the Middle East, Saudi Arabia, India, and Japan. These markets present new opportunities but also intensify the competition for top local talent. Although muted about immediate growth in China, many executives recognize its long-term strategic importance, viewing current valuations as attractive entry points.
Navigating Industry Cycles
The asset management industry needs fresh thinking and new perspectives to navigate the dramatic changes ahead. Digital and data savviness, commercial acumen, and strategic thinking are top priorities for future leaders. As one asset management CEO stated, "The balance of information capital with human capital will be critical to the success of any organization and the asset management industry."
Identifying high-potential leaders and exposing them early to multifaceted challenges is essential, as is purposefully and systematically developing capabilities outside of traditional commercial channels. The industry must also be ready to embrace talent from other sectors, increasing leaders' breadth and depth, particularly in client engagement and ability to influence across disparate stakeholder groups. With further consolidation making organizations increasingly complex, leaders must take a proactive approach to culture alignment and governance.
Bold Vision and Execution
The asset management industry stands at a pivotal juncture. Thoughtful reflection on strengths and leadership gaps, combined with a bold vision and the ability to execute, will differentiate successful asset managers in the next cycle. One method for assessing leadership needs and determining which executive can run longer and further is Egon Zehnder’s Potential Model, which focuses on four key traits (curiosity, insight, engagement, and determination) that can help translate a leader’s future abilities. In asset management, that could be interpreted as:
- Curiosity: Navigating complexity and ambiguity by learning and exploring on the edges; willing to admit and improve from mistakes
- Insight: Connecting dots from complex market trends and developing transformational solutions through both top-down and bottom-up approaches
- Engagement: Practicing whole enterprise thinking, fostering followership, collaboration, and connecting hearts as well as minds, as opposed to siloed thinking
- Determination: Making bold and tough decisions with a comfort in taking risks; committing to whatever it takes to achieve or exceed goals
As the industry evolves, those who can demonstrate these traits and nurture them in their organizations to effectively navigate these transformations will not only survive but thrive, reshaping the global financial landscape for years to come.
