Scale and consolidation to be at the ‘forefront’ in 2025

Expanded product ranges fuelled by M&A will be critical for asset managers in 2025, according to EY Oceania’s wealth and asset management leader Rita Da Silva.

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In its outlook, the firm shared five trends it sees in 2025 for asset managers. 

These are:

• Data modernisation and the use of AI.
• Talent optimisation.
• Better integration of in-house technology and external ecosystems.
• Regulatory collaboration and innovation.
• Transparent leadership on sustainability.

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One particular area of focus is the expansion of product ranges, with Pinnacle, Magellan Financial Group and Platinum Asset Management all recently making announcements about diversification.

This was a theme previously discussed by Morningstar which stated that looking at non-traditional asset classes could be a way for active asset management firms to gain market share from low-cost passive players. However, it noted experienced managers could be difficult to recruit given the niche nature of the vehicles.

Da Silva said: “With returns, margins and profitability all being impacted by market conditions, scale and consolidation will remain at the forefront for the wealth and asset management industry in 2025, and we can expect to see further merger and acquisition activity.

“Low expense ratios are also likely to persist over the coming year, as investor interest in low-cost funds continues to grow and active management is increasingly incorporated into ETF structures. In this environment, expanding product range to include alternative investments, such as private credit, may prove to be an effective strategy for growth.”

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In December, Scarcity Partners’ managing partner Adrian Whittingham, discussed how fund managers should avoid M&A deals for the sake of it. 

“Any strategic rationale for M&A shouldn’t be just about ‘we have a product gap’,” he said. “It needs to be – does the culture fit for this transaction? Does it make sense for our shareholders or our investors? Can we get a realistic return on it over a 5–7-year view, not in the next 12–24 months?”

Elsewhere, Da Silva said there are numerous risk factors which will affect fund managers going forward. These are digital transformation, technological advancements, cyber security, ESG factors around reporting, and data reliability. 

“Specific product and regulatory developments are highlighting important risk factors for the wealth and asset management industry. Firms are likely to encounter significant risks in areas such as digital transformation, technological advancements and cyber security. Environmental, social and governance (ESG) factors also present a strategic and operational risk, arising from evolving regulatory and client reporting requirements, including challenges in data reliability.”