AI and the Next Wave of Transformation | rectangle

Asset Managers Need to Set a Strategy to Leverage the AI Opportunity and Drive Future Growth

  • In 2023, Assets Under Management Rose by 12% to Nearly $120 Trillion, but Profits Fell by 8.1%
  • 72% of Asset Managers Think That Generative AI Will Have Significant or Transformative Impact, but Only 16% Have Fully Defined a Strategy

BOSTON—The global asset management industry bounced back in 2023. The industry’s total assets under management (AuM) rose to nearly $120 trillion, an increase of 12% over 2022, a year that saw AuM plummet by 9%.

All parts of the world participated in the 2023 recovery. AuM growth ranged from 16% in North America to 5% in Asia-Pacific markets, excluding Japan and Australia. However, this impressive growth only serves to mask the industry’s underlying vulnerability.

The asset management industry’s revenues increased by just 0.2% in 2023, while costs rose by 4.3% for the year. With these two opposing forces at play, profits declined by 8.1%. This is according to Boston Consulting Group’s 22nd edition of the Global Asset Management Report, AI and the Next Wave of Transformation, released today.

“The structural challenges facing the industry will only continue to grow,” says Dean Frankle, a managing director and partner at BCG, and coauthor of the report. “To remain competitive, asset managers will need to seize the opportunities offered by artificial intelligence and double down on investing in enhanced productivity, product personalization, and the opportunity of private markets.”

An Industry Under Pressure

Five fundamental pressures pose structural challenges for asset managers and show no sign of subsiding.

Revenue pressure continues. Asset managers cannot rely on market performance to drive revenue growth in the future to the same extent that they have in the past. Since 2005, almost 90% of the industry’s revenue growth has come from market appreciation.

Passive funds are increasingly popular. Passive products continue to capture the lion’s share of net flows. In 2023, passive products attracted 70% of total global mutual fund and exchange-traded fund net flows (about $920 billion). That was a sharp rise compared with the period from 2019 through 2022, when 57% of net flows went into passive products. 

Fee compression is accelerating. Similarly, the pressure on fees showed no signs of reversing in 2023. The average fee in 2023 was 22 basis points (bps), down from 25 bps in 2015 and 26 bps in 2010.

Costs are rising. Costs continued on an upward trajectory. In fact, costs have increased by about 80% since 2010 at a compound annual growth rate of 5%.

Fewer new products are surviving despite attempts at innovation. Despite asset managers’ continuing efforts to develop new offerings, many have not been successful. In fact, only 37% of all mutual funds launched in 2013 still existed by 2023.

A Well-Executed AI Strategy Can Drive Growth

To assess where asset managers are on their AI journey, BCG, in partnership with the Investment Company Institute (ICI) and the CFA Institute, conducted a global survey of asset managers in the first quarter of 2024 that focused on the elements of generative AI (GenAI) adoption. Our benchmark includes 57 asset managers representing more than $15 trillion in AuM.

Among the key findings:

  • 72% think that GenAI will have a significant or transformative impact on their organization within the next three to five years
  • 66% have made GenAI a strategic priority for their business
  • 75% are actively dedicating capital and human resources for GenAI deployment in the short term, with 29% committing a significant portion of their innovation budget
  • Only 16% have fully defined a strategy and are working on implementing it throughout the business

“Generative AI opens up tremendous potential for innovation within the asset management industry,” says Peter Czerepak, a managing director and senior partner at BCG, and coauthor of the report. “Achieving results will require strategic thinking and the ability to execute at scale. With traditional sources of growth slowing down, it’s imperative for firms to move forward on this journey.”

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