Artificial intelligence (AI) was probably the most continuously discussed topic over the past 12 months amongst asset managers who participated within the Index Industry Association (IIA) annual member survey. According to AI, sustainable investing, thematic investing and tailored investments were at the highest of the list amongst survey participants.
In total, the outcomes illustrate that the wealth management industry in Europe and America is changing, facing increasing complexity and a necessity for brand new partnerships, recent and more specialized information sources, recent capabilities and stronger ecosystems and alliances.
background
Four years ago, IIA began publishing a survey in collaboration with our member firms and conducted it with the support of Opinion research. Each 12 months we speak to 300 chief investment officers, portfolio managers and chief financial officers from a wide range of investment providers within the United States and Europe to evaluate how asset managers view progress within the face of current challenges and opportunities and what key aspects influence longer-term industry development.
When we began this endeavor in 2020, the goal was to be sure that index providers understood the long run needs of asset managers regarding environmental, social and governance (ESG) and sustainability-related indices.
Based on our insights over the past three years and feedback from our IIA members, we now have decided to expand the survey beyond ESG and sustainability issues in 2024. Of course, ESG and sustainable investing remain central and essential to global investors, but we wanted to make sure our visibility was broad enough to capture the total range of drivers and trends impacting our clients. I’m so glad we took this approach because our findings revealed a much deeper set of challenges, opportunities, hopes and concerns. This 12 months’s results make it clear that the industry is facing increasing complexity.
Which aspects have the best influence on investment performance?
We asked which aspects may have the largest impact on investment performance over the subsequent 12 months. Next 12 months, asset managers will focus more on macroeconomic issues reminiscent of rates of interest, inflation and a possible economic slowdown than on elections and geopolitical events. Notably, 81% of US respondents prioritized rates of interest and inflation as a very powerful issues.
We asked managers what trends they’ve thought of most within the last 12 months. I used to be surprised at what number of respondents ranked AI as their most continuously discussed topic, overtaking sustainable investing. Other technology topics reminiscent of tokenization and blockchain were only addressed by about 10% of managers. After sustainable investing, managers focused on thematic investments and tailored products. Only about 25% identified crypto products as a subject they talk to their colleagues – in regards to the same percentage as those serious about how one can integrate private markets into their firms’ offerings.
Generative AI: A Game Changer
A giant good thing about our decision to broaden the scope of this 12 months’s survey is the insights we now have gained around AI and what it means within the eyes of asset managers.
ESG exuberant minds
In this 12 months’s survey, we took one other take a look at ESG and sustainable investing to see whether the tremendous pace of growth described in previous years will proceed. We found that while ESG continues to be an important part of world asset managers’ strategy, the high expectations for future growth that we now have seen in previous years of the survey have waned.
Looking on the four-year period of the survey, after the rise we saw in 2022 and 2023, survey respondents’ expectations for ESG portfolio implementation have come back all the way down to earth and are back near the extent of decreased in 2021. For us, this doesn’t mean that ESG is disappearing, but fairly that it’s settling right into a more realistic long-term growth trajectory. Here, too, environmental aspects (the “E” in ESG) proceed to be the main focus of investors in relation to sustainability.
Private Markets: A Puzzle to be Solved
According to our survey, private markets proceed to present opportunities but in addition challenges for global asset managers. While asset managers just like the concept of personal markets for investment opportunities and diversification, they cite several challenges in implementation.
Difficulties in integrating private equity into their investment portfolio, liquidity concerns and data gaps were cited as key themes. This just isn’t surprising given the historically slow performance of world indices that track private equity market data and performance.
Popular index providers
While our survey highlighted several categories that present significant challenges for our clients, it was encouraging to see that the 4 areas during which asset managers mostly work with index providers are sustainable investing, direct indexing, thematic investing and tailored investment solutions. The survey shows that greater than half of respondents imagine index providers and the services we provide will change into more necessary to their success over the subsequent 12 months. Importantly, around 20% expect to make use of additional index providers in the subsequent 12 months.
This is a really general snapshot of our survey results. I invite you to delve deeper this 12 months’s results. I welcome your feedback and suggestions for future research.
