KPMG 2024 Asset Management CEO Outlook

Bullish on growth

Asset management CEOs are largely optimistic about their industry's growth, with a majority expecting earnings to grow by 2.5% or more in the next three years. Workforce expansion is anticipated, with 89% planning to increase headcount. These CEOs are less worried about economic uncertainty and geopolitical complexities than their counterparts in other sectors. Mergers and acquisitions are viewed as a key growth strategy, although the appetite for large, impactful mergers has decreased.

Luxembourg

In Luxembourg, the ManCo and AIFM sectors are experiencing a surge in products with 33% expanding ManCo service coverage. This trend highlights the dynamism and confidence within the industry. Market players are actively exploring opportunities in the alternative investment space to expand their business volume. To achieve this growth, 28% of ManCos & AIFMs are revisiting their outsourcing model in order to adapt their operating models to be scalable and cost-effective. CEOs need to redefine their operating models to fully capture success by distinguishing between core and non-core business activities. This involves identifying and prioritizing essential functions while streamlining non-core activities. A notable trend is the strategic outsourcing of tasks, both within the group and through third-party managed service providers, to access specialized skills, reduce costs, and enhance agility.

Building on AI

Asset management CEOs recognize the crucial role of Gen AI in their growth and operational strategies, with 75% prioritizing it as an investment, a figure higher than other sectors. They anticipate returns on these investments within five years. Rather than causing job losses, they see Gen AI as a tool for workforce upskilling and process enhancement, including fraud detection and cyber-attack response. Despite this, 60% express concerns about ethical issues like privacy and bias, and 83% fear regulatory barriers. Cybersecurity is a significant worry, with these CEOs expressing more concern than their counterparts in other sectors, yet only 34% feel ready to handle a cyber-attack, reflecting a drop in confidence from the previous year.

Luxembourg

In Luxembourg, ManCos are eager to explore the potential of AI. Currently within ManCos, the focus is primarily on prototyping and testing AI for specific tasks relevant to the industry, rather than implementing it on a larger scale. While this is stable, it remains in a preliminary phase.

Some promising applications include corporate secretarial functions, minute-taking, AML processing, and semantic analysis of prospectuses. The key takeaway is that there is a strong interest in AI adoption, and we are beginning to see successful use cases that highlight its potential impact.

Bold on talent

Globally, asset management CEOs are focused on talent acquisition and retention, with 89% planning workforce expansion in the next three years due to concerns about talent shortage impacting growth. They are particularly worried about the retirement of the Boomer generation and the ensuing knowledge transfer gap. These CEOs face more competition for talent (34%) than other sectors (27%). To attract talent, strategies include enhancing ESG credentials (18%) and refocusing the employee value proposition (14%). They recognize the need for improvement in diversity and inclusion, starting at senior levels (77%). Despite expecting daily office attendance (70%) and rewarding officegoers, they do not plan workforce reductions with Gen AI adoption but foresee role changes.

Luxembourg

In Luxembourg, both attracting and retaining staff are key priorities. In light of resource scarcity and the need to optimize ManCo’s and AIFM’s operating models, addressing staff retention is crucial, extending beyond Luxembourg. This challenge reflects a broader trend, as many companies face similar constraints. Attracting and retaining talent is a top priority in Luxembourg, with 76% of Management Companies (ManCos) now operating at least one branch, up from 55% two years ago.

Originally focused on marketing and distribution, these branches are expanding into areas like discretionary portfolio management (DPM), investment advice, and second line of defense support. By leveraging other centers, branches can help enhance staff attraction and retention strategies.

Balancing on ESG

Asset management CEOs are striving to align their ESG goals with investor expectations, acknowledging the need to address societal issues like inclusion, climate change, and social justice. They view the push for net-zero emissions as a growth opportunity but fear the financial and positional risks of not meeting ESG targets. While 62% have fully integrated ESG into their business, only 45% are confident in achieving net-zero goals by 2030. Rapidly changing stakeholder expectations and operational challenges, such as technology gaps, complex supply chain decarbonization, and skill shortages, pose significant hurdles.

Luxembourg

In Luxembourg today, there is a strong appetite for ESG among ManCos and AIFMs, reflecting a commitment to sustainable practices. However, the current market reality highlights that regulatory constraints can sometimes temper this enthusiasm. It's important to recognize that the challenges lie not within ESG itself, but rather in navigating the roadblocks that accompany its implementation.

Although performance hasn't significantly improved, this presents an opportunity for a more nuanced and thoughtful approach to ESG integration. We are witnessing a strategic pivot towards a cautious yet proactive stance, where regulatory scrutiny is seen as a chance to refine processes and enhance compliance. This careful navigation can lead to a balanced arbitrage, allowing firms to align their ESG initiatives with both regulatory expectations and market demands. Overall, this period of reflection and adaptation can pave the way for more robust and effective ESG practices in the future.