The investment industry is entering a new age. Tougher competition, tightening margins and stringent regulatory oversight are putting pressure on fund managers. At the same time, institutional investors are demanding diversification in the face of continued market volatility – and all while expecting better governance and higher standards.

Amid the complexity, Carne’s second annual Change report tells a story of both headwinds and tailwinds – fund managers and institutional investors alike are predicting a growth fuelled year ahead despite facing these mounting pressures. We surveyed 251 C-suite fund management executives and 200 institutional investors, collectively responsible for $4.6 trillion assets under management, on their strategy for the year ahead.

Change 2025 is essential reading to navigate tomorrow’s opportunities.

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Change 2025: A story of headwinds and tailwinds

Glenn Thorpe, Managing Director

The more things change, the less they stay the same

It may not please headline writers – obsessed with the short-term – but one of the most considerable structural shifts in the global economy is the changing allocation of capital. 

Our research shows the guardians of that capital, fund managers working across asset classes and geographies, are profoundly changing the way they manage, structure, package and deploy it. 

Some 81% of fund managers expect client inflows to rise this year – and a similar number will launch the products to match. Different managers might take different paths, but they all have the same goal.  

As they do so, they bring capital to new areas, support growth within the funds industry and find new ways to manage costs. 

ETFs everywhere, all at once

There are some US$13 trillion in client assets allocated to ETFs. And still managers want more. Nine in ten already manage exchange-traded products of some description – and almost all of the rest (89%) will launch in the next four years.  

ETFs have become the multi tool, the Swiss army knife of funds, unlocking hard-to-enter asset classes, and providing concentrated exposure to specific assets: small wonder that 97% say the products are essential to the future of their organisation. 

But appetite and capacity can be very different things. Managers require partnering with third parties to facilitate this growth, supporting products as they head to market. This is because – in the eyes of many managers in our research pool – they need the third party systems, processes and relationships with custodians to launch and distribute ETFs in new markets, at scale.  

That’s not all – partnering with third parties is invaluable for establishing legal structures, fund documentation and listing on exchanges. Managers can no longer do it all by themselves. Not if they want to grow. 

The march to new asset classes gains momentum

At this point, intentions start to diverge, according to the type of underlying client. 

Wealth managers require drawdown opportunities, additional rates of return and a degree of liquidity. This is drawing them towards semi-liquid funds. Around 80% of fund managers already offer them – just over half the rest will launch soon, just under half within two years.  

With the primacy of liquidity in this market, wealth managers want to provide clients with more motorway style intermittent entry and exit points – not the closed toll road of pure private market funds, with their immutable lock-up terms.  

Wealth managers expect this strategy to help them win more retail investor business – thanks to the investment fund structures that cater to them, such as LTAFs and ELTIFs.  

Institutional fund managers are instead moving towards alternatives. They like the diversification, downside protection and hedging opportunities. Hedge funds appear back in vogue: more than half of research respondents place them in their top three alternative asset classes for inflow growth, ahead of private equity and real estate. 

Remarkably they are also looking at crypto and digital assets. The 40% of managers with such assets expect to build their allocations materially – not least because of the more benign global environment for them. 

As with their wealth manager bedfellows, institutional managers are also eyeing growth: nine in ten expect fundraising from pension funds to increase this year.  

Continuity of domicile, discontinuity of cost

The funds and the means to achieve all this will continue to emanate from Ireland and Luxembourg. Some 92% and 93% of respondents, respectively, expect these two giant fund centres to grow as a result.  

Much of this steady expansion will support cross border work: nearly nine in ten advise they plan to raise new capital overseas this year. 

But growth always comes at a price. 

This year’s Change report shows managers addressing more regulatory responsibilities and investor scrutiny. As our previous research has also shown, the operational challenges can be material and lasting – and costly. This is why more managers partner with third-party specialists to find efficiencies in non-core but critical activities, so they can grow unimpeded. 

If you would like to know more about the report – or how Carne can support your organisation in taking such opportunities, please get in touch on contact@carnegroup.com

You can also Download the full report to learn more.