The last several years have brought about change at a scale and pace once seemingly unimaginable across the US economy. For asset managers specifically, 2024 begins at an inflection point. From an evolving regulatory landscape to geopolitical turmoil, to the rise of generative AI (GenAI) and ongoing questions about the direction and duration of a possible “higher-for-longer” environment, asset managers are confronted with both challenges and opportunities. While there are a multitude of areas to keep a close eye on throughout the year, here are three of note:
POSSIBLE RATE CUTS
After operating for years in a low-rate environment, the rapid pace of rate hikes seen in 2022 and 2023 forced asset managers to quickly adapt. In recent months, the Federal Reserve has begun to signal that they will tap the breaks in 2024 as they seek to possibly cut rates later this year. According to a recent survey KPMG conducted of asset managers at the end of 2023, a majority of respondents anticipated rate cuts in the second half of 2024 or even earlier, in line with broader market expectations. The market needed a signal that rates would not increase for transactions and deal activity to pick up, and the possibility of interest rate cuts in 2024 creates a more favorable environment for asset managers.
The survey also revealed that a majority of respondents felt that their organization’s ability to deploy capital or grow would not be impacted if the federal funds rate remained at 5.5% or higher in 2024. What we can take from all of this is that asset managers aren’t so much concerned about the level of interest rates as they are about their varying trajectory and timing.
REALIZING BENEFITS OF GenAI, ADDRESSING LEARNING CURVE
Every industry is still in the opening stages of beginning to comprehend how emerging technologies such as GenAI are going to impact the ways in which we work. While there is uncertainty over the long-term implications, what is clear is that the technology is here to stay. In asset management, however, our survey revealed there is a discrepancy when it comes to expectations and comfort level with the technology. While 30 percent of asset managers anticipate GenAI being utilized for 5-20 percent of tasks by the end of 2024, only one in five feel adequately knowledgeable about its use. This divergence highlights a skill gap that needs to be addressed for asset managers to be able to utilize GenAI to its fullest potential and stay competitive in the industry.
In fact, adopting emerging technologies was identified as the highest strategic priority by 65 percent of respondents. As 2024 progresses, how asset managers continue to invest in, deploy and upskill their professionals in the use of GenAI will be one of the key areas worth watching.
TALENT RISK AND HYBRID HERE TO STAY
Attracting and retaining the right talent has always been critical for asset managers, but, in a hybrid environment, it’s never been more challenging.
Our survey revealed that asset managers are concerned about talent risk, including leadership, recruitment, retention, and cultural issues. This concern was greatest among respondents from smaller organizations, highlighting the challenges they face in attracting and retaining top talent.
In addition to attracting and retaining talent, asset managers are continuing to reassess their strategy when it comes to their working environment. In short, it appears hybrid is here to stay, with 67 percent of respondents stating that their organization has implemented such arrangements, while only a quarter of respondents are back in office five days a week.
THE PATH AHEAD
If there is one lesson perhaps above all to glean from the last few years, it is just how unpredictable the road ahead can be. 2024 promises to bring about continued change across the asset management industry, notably regarding GenAI. The organizations that continue to evolve and adapt to the short-term challenges while maintaining focus on their longer-term objectives will be best positioned to succeed.
Roger Yang is KPMG’s Asset Management Practice leader for Pacific Southwest markets. Learn more at kpmg.us.
