A competitive fundraising environment, shifting retirement income needs, continued private credit demand and economic headwinds are continuing to shape the landscape for asset managers.
Here’s a closer look at the top trends and headwinds that emerged from asset management firms’ first-quarter earnings calls in early May, according to Bloomberg transcripts.
The democratization of alternative investments
Multi-billion-dollar asset managers are launching innovative new products to attract capital from non-traditional sources amid an increasingly competitive fundraising environment. Across the board, the largest asset managers are deploying strategies catered to retail investors. Some of these strategies include a retail private equity fund or a tokenized fund.
This suite of products is aiding fund managers in expanding their addressable market by including individual investors. Some organizations are even partnering to launch these products jointly, bringing new ways for individual investors to incorporate alternative investments into their portfolios.
This presents a path toward significant growth for the alternatives space. The largest asset management firms see enormous opportunity in structuring products to attract wealthy individual investors. Individual investors also see customization and diversification opportunities in these products.
Longer lifespans and the impact on retirement
Retirement services are expected to be a massive driver of growth in the asset management sector as the need for guaranteed retirement income and guaranteed lifetime income rises globally as people live longer. One executive said more than two-thirds of the assets their firm was managing on behalf of clients in Q1 2024 were in retirement assets—topping $1 trillion—signaling the amount of opportunity in the space. Funds have launched new personalized retirement solutions and lifetime income products and will continue to tap into opportunities in this space.
No pause on private credit strategies
Private credit demand continues into the foreseeable future as investor appetite for both non-investment-grade strategies and investment-grade strategies increases. The current macroeconomic environment of higher rates is expected to drive demand for channels such as opportunistic credit as high-quality assets need liquidity solutions to bridge the gap in their capital structures. The more novel channels can offer differentiated risk-return profiles for investors and can better fit the wide-ranging allocation needs of the fund manager.
At one firm, 60% of total inflows and nearly 60% of total deployments for the quarter were driven by corporate, insurance, and real estate debt businesses, one executive said. As private credit continues to grow, managers are looking to fill more of their borrower’s needs, leveraging their existing relationships to expand their reach. This has been an advantage for the larger fund managers compared to their smaller fund peers or new market entrants.
Headwinds
The reopening of the initial public offering markets is a crucial catalyst needed to reignite realization activity within private equity. While the pipeline of investments continues to grow, realizations are still market dependent. During earnings calls, executives cited factors such as rate uncertainty and the bid-ask spreads on asset values as challenges continuing into 2024. A full recovery of the IPO market will most likely be gradual.
