2024 Asset Management Trends to Know

As the financial landscape continues to evolve, so do the challenges and opportunities for the asset managers. The US equity markets have rallied 32% in the past year, lifting asset manager valuations closer to our fair value estimates. While the traditional asset managers continue to struggle with outflows and fee pressure, improved market conditions and lower interest rates are invigorating alternative asset manager growth.

When you’re up to date on the latest Q4 2024 asset management trends, it can improve your ability to financially empower clients and help them make better investment decisions. Our Morningstar researchers take an in-depth look at the traditional and alternative asset management spaces, market conditions, top industry picks, and more.

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Secular headwinds persist even as cyclical headwinds are abating.

The US equity markets have waxed and waned with the expected direction and magnitude of changes in short-term interest rates since the start of 2022, and we're far from being at the end of that cycle. While the 2024 election, which saw the Republicans take control of both Congress and the presidency, has lifted equity markets further, it has also raised questions about future economic growth (given some of the Republican’s conflicting policies) and the direction that rates will take in the near to medium term.

Following the 50-basis-point cut in the federal-funds rate in September, we expected rates to be cut another 25 basis points at each of the final two meetings of 2024. That said, the Fed will continue to be focused on inflation, which could spike in the next couple of years if some of the economic policies floated by President-elect Donald Trump (like across the board tariffs) come to fruition.

Having risen during much of 2020-21, the share prices for the traditional asset managers sold off hard during 2022 (as both the credit and equity markets declined double digits) and have only recently started to fully recover their footing. Even so, most of the traditional asset managers we cover are currently trading at just slight discounts to our fair value estimates.

Aside from BlackRock, revenue levels for the group have yet to recover to pre-2022 levels, which in most cases won't happen until well into 2025. On top of that, fees continue to be pressured by the growth of low-cost passive products as well as the power that distributors exert over pricing. Ongoing fee compression continues to have a dampening effect on profit margins as well, given the operating leverage inherent in these firms' business models.

While the traditional asset managers we cover have not seen management fees decline as dramatically as the rest of the industry during much of the past decade, average asset-weighted expense ratios for the industry have started to decline at a slower rate than they had been. All the while, fees continued to come down for our coverage around the same pace they have been the past several years. As such, we’re currently witnessing higher rates of decline in the realization rates of some managers in our coverage than we are for the industry.

Invesco, Federated Hermes, and AMG have all seen their base management fees decline more than the group average and actively managed funds overall the past several quarters.

Lower rates and improved market conditions are a net positive for alternatives—with fundraising, deployment, and realizations all expected to recover slowly.

Almost all alternative fund performance took off after the covid pandemic due to a combination of strong equity market returns and a huge fundraising and deployment cycle. While fund returns pulled back during 2022-23, the use of a mark-to-model valuation approach by the traditional asset managers helped smooth returns for private-market segments during these more volatile markets.

Coming into 2024, we had expected a continuation of positive results but the past couple of quarters have been more of a mixed bag for category returns. It should also be noted that the historical outperformance of alternative funds relative to traditional offerings has not always translated into above-average stock performance. We’d highlight the hit that the shares of these companies took during the 2022 selloff, along with the rally in the shares over the past year, as an indication of how highly correlated these stocks can be to market returns.

Private equity remains the largest alternative-asset category and continues to lead fundraising efforts in terms of capital raised at the strategy level, accounting for 55% of total fundraising on average the past five years.

While 2023 fell short of being another record year of fundraising for the private capital markets, there was a meaningful uptick in the back half of the year. And based on results from the first three quarters of 2024, we expect fundraising this year to be on par with 2023 levels.

With deployments slowing, the private equity segment is expected to end 2024 with $7.7 trillion in fee-earning AUM and $2.5 trillion in dry powder (compared with $6.8 trillion and $2.2 trillion at the end of 2023).

Much like we've seen with fundraising, the five largest publicly traded alternative-asset managers have increased their share of both total capital invested and dry powder. At the end of this year, these firms—Blackstone, Apollo, KKR, Carlyle, and Ares—should account for 22% of total capital invested, as well as the industry's dry powder.

A recent report covering our asset management industry outlook finds low-cost, passively managed products on the traditional side of the asset-management business have taken share from actively managed funds over the past two decades. And factors such as an ongoing transition to fee-based accounts over commission-based structures are leading to increased demand for index funds and ETFs in the marketplace.

Active fees have been pressured by the growth of the passive market and distributors looking for low-cost higher-performing funds for their platforms—both of which we expect to continue in the future. Meanwhile, passive fund fees have declined to around 10 basis points as active funds scale up. While demand for alternative assets is likely to diminish some in the coming decade, we still see the alternative asset management industry potentially sitting on $27.3 trillion at the end of 2033.

In a constantly changing asset management industry, it’s important for asset managers to stay ahead and demonstrate their value. When you know the latest trends, you can better support your clients.

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