How Asset Managers Can Play Offense as Investors Diversify Their Bets

Asset managers are entering a new phase of client-centric growth opportunities, one in which the best equipped will differentiate themselves from the pack. The market environment is in flux, and asset managers need to meet their clients where they are to help them navigate their investing journey. Asset managers are carefully reviewing their product offerings and working to ensure that they have the enabling tools that will help deliver the best offerings for clients.

Shifting market dynamics — including uncertainty around performance, geopolitics, regulation, and the impact of AI — are compelling asset managers to identify new ways to be more responsive to clients. There is an exciting runway to meet investors’ needs by broadening the lineup of products, increasing distribution opportunities, and tapping best-in-class tools to respond to investor demands.

Top considerations for asset managers today

In the first quarter of this year, Northern Trust commissioned a survey of 300 senior leaders from global asset management firms with assets under management of $500 billion or below. While previous surveys emphasized cost control as a core preoccupation among asset managers, 70% of asset managers surveyed this year said improving the investor experience was a top strategic objective over the next two years. Meanwhile, 72% said improving quality and accuracy is a key goal during the same period. Asset managers are now going on the defense to protect their business.

To be sure, cost containment is still important for asset managers, but it’s not the most prominent among the priorities identified by respondents to our survey. Why is this happening? It’s partly because asset managers have adopted new technologies and operating models to minimize expenses and attack shrinking margins. They’ve also changed the way in which they work. In particular, a move away from pandemic-era business models means employees are coming into the office more and team members are staying in their roles longer. These operational changes, on top of positive returns in equity markets, are pushing an increased focus on client experience improvements over cost.

Better product fit for investors of varying needs and priorities

Recent research shows that a large swath of investors is looking to increase alternative investment allocations in the coming years. Diversification is seen as an important driver of increased returns, and asset managers are responding to these needs. In the 2024 Northern Trust study, some 60% of respondents said they were expanding their product sets, and among asset managers who said they were supporting new asset classes, 71% said they were increasing allocations in infrastructure; 54% are growing allocations in digital assets; 49% are boosting allocations in real estate; and some 38% said they would ramp up their allocations in private credit. Broadening the mix of products allows asset managers to stay competitive through a holistic ensemble of offerings. They also want the versatility to be able to take cues from client lessons quickly and efficiently: If a strategy has sold well in Europe, asset managers need to be able to quickly make that available to investors in the U.S. and beyond. Having the right toolset allows asset managers to flexibly and efficiently define their product roadmaps.

Data as a critical building block

The importance of data management is critical to expand products and ensure asset managers can serve their clients effectively. Data is a critical enabler that allows asset managers to expand distribution and grow suites of products to better serve investors. The vast majority of asset managers who participated in the study pointed to the importance of quality and accuracy of information. In particular, they need to ensure data consistency and quality to launch new products and reach new markets.

Data quality and accuracy are also becoming important as regulatory demands on asset managers grow. To meet evolving regulatory requirements, asset managers need ongoing access to quality data and need to be nimble enough to draw on it as reporting obligations evolve. Data is also an important tool for good client relations: Investors frequently look at their portfolio data for updates on shifting market movements and risk exposure considerations. In effect, the quality and accuracy of data feeds is a table stakes for today’s digitally savvy investor.

Leveraging partner capabilities

Asset managers are increasingly looking to partners for tools to support client experience and product improvements. More than ever, asset managers recognize that outsourcing enables the ability to scale faster while maintaining a lean cost structure. A growing number of firms are working with partners, with some 72% recognizing that the high cost of maintaining in-house capabilities is a driver for outsourcing. Some 83% identified data management as a key area for outsourcing. Meanwhile, 59% pinpointed securities finance and liquidity as a top area to outsource.

Working with the right partner ensures that non-core areas of asset managers’ business can be delivered in a cost-effective way. These include securities finance, liquidity management, trading, foreign exchange, and other capital market activities. On data management, it’s important to be able to have direct, one-on-one interaction with a partner to understand what the asset manager’s needs are, including how their client demands are changing.

There is no one-size-fits-all model, and the best partners can tailor solutions to suit each asset manager’s unique needs. At Northern Trust, we’re in a position to help asset managers deliver the best products and services to their clients — whether it’s the ability to provide data in different formats, including web portal access, application programming interfaces and data warehouse solutions. Working with a trusted partner that can provide whole-office support — including front, middle and back- office solutions across the investment landscape, backed by investments in the latest technology — can help asset managers expand their product offerings and distribution channels. Every asset manager is unique, and how a partner connects to their office may be different for every firm. Working with a partner with long-established expertise and credibility allows asset managers to go to market more quickly and deploy their in-house resources in the most efficient way.