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Adaptation to the New Market Paradigm Is a Key for Asset Managers to Prosper

In 2023, asset managers saw record gains, exemplified by J.P. Morgan's asset and wealth management business, which reported $3.4 trillion in assets under management, a 24% increase from the previous year, totalling $656 billion. 

Despite last year's strong performance, the looming question for 2024 is how asset managers will adapt to the current high-interest rate paradigm and other financial challenges. 

Let's explore the current obstacles in the asset management industry which we will witness in 2024 and will see in 2025.

The value of key employees rises

The rapid development of technologies and AI has replaced many workers in different spheres. In spite of this, competent employees in senior positions are still in high demand. 

Asset management is no exception. On the contrary, it is one of the sectors which experiences a huge lack of qualified workers and battles to hunt the most relevant candidates. 

The hunting market, like the futures market, operates on expectations and forecasts. What are the expectations for hiring in asset management? Primarily, similar to other sectors, the anticipation lies in automating routine tasks using advanced technologies. Despite advancements, the invaluable expertise of seasoned managers, often referred to as the "great minds" of asset management, remains irreplaceable. Consequently, retaining these top talents within companies is deemed essential at any cost. 

The future belongs to consolidation 

Consolidation stands as a pivotal turning point in the industry. A PwC study forecasts that by 2027, around 16% of existing asset and wealth management firms will undergo some form of consolidation. To meet this projection, consolidation efforts will need to accelerate at twice the current pace.

In capital markets, the adage "big money makes big money" holds true, indicating higher costs associated with this business. Integrating AI and other emerging technologies into operations is feasible today, but it's anticipated that the price for quality tools will substantially rise in the coming years. 

Moreover, the market foresees a shift towards ecosystems rather than individual solutions. Customers increasingly prefer accessing all necessary services in one place. As a standalone entity, your options are limited to either targeting a very niche market or merging with other companies.

Adjustment to a low-rate paradigm

The low-rate era poses a challenge for asset management firms as they vie with traditional banks and their higher deposit rates. Customers find banking products more familiar, leaving asset managers with limited offerings. Adapting fund allocation strategies to compete is tough, yet as rates decline, the battle for clients and effective strategies will intensify.

Even though the timing of rate reductions remains uncertain, asset management firms should proactively adjust their processes for this eventuality. This is driving the current competition for top talent in asset management, as firms anticipate future demand. Even if newly hired talents aren't immediately fully engaged, firms must prepare for their imminent high demand.

Always embrace the change

Overall, asset managers, like other businesses, must constantly adapt to change and carve out specific pathways accordingly. The paradigm is shifting, necessitating agility in formulating new approaches, sometimes through collaboration with fresh talent and innovative ideas.

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