An Industry in Transition: AI Top of Mind in 2024 Asset Manager Survey

Artificial intelligence (AI) was the most raised issue in the past 12 months among asset manager respondents to the annual Index Industry Association (IIA) member survey. Sustainable investing, thematic investing, and customized investment, respectively, ranked as top of mind after AI among survey respondents.

Overall, the results illustrate that the asset management industry in Europe and America is in transition, facing mounting levels of complexity and a need for new partnerships, new and more specialized information sources, new skills, and stronger ecosystems and alliances.

Background

Four years ago, IIA began publishing a survey in partnership with our member firms and fielded with the support of Opinium Research. Each year, we engage with 300 chief investment officers, portfolio managers, and chief financial officers across a wide range of investment providers in the United States and Europe to gauge how asset managers view progress against current challenges and opportunities, and the key factors shaping the longer-term evolution of the industry.

When we started this endeavor in 2020, the goal was to make sure index providers understood the future needs of asset managers in terms of environmental, social, and governance (ESG)- and sustainable-related indexes.

Based on our learnings over the last three years and feedback from our IIA members, we decided to broaden the 2024 survey beyond ESG- and sustainable-related questions. ESG and sustainable investing of course remain central and material to global investors, but we wanted to make sure that our aperture was wide enough to capture the full pallet of drivers and trends impacting our clients. I am so glad we took this approach as our findings revealed a much deeper set of challenges, opportunities, hopes, and concerns. What is clear from this year’s results is that industry is facing growing complexities.

What Factors Will Have Greatest Impact on Investment Performance?

We asked which factors over the next 12 months would have the greatest impact on investment performance. Over the next year, asset managers are more keenly focused on macroeconomic issues like interest rates, inflation, and a potential economic slowdown than they are elections and geopolitical events. Notably, 81% of US respondents prioritized interest rates and inflation as the most important issues.

We asked managers what trends they have been thinking about the most during the last 12 months. I was surprised by the substantial number of respondents who ranked AI as their most raised issue, overtaking sustainable investing. Other technological issues like tokenization and blockchain were only raised by approximately 10% of managers. Managers focused on thematic investment and customized products after sustainable investing. Only about 25% identified crypto products as a topic they are discussing with their colleagues — about the same percentage as those thinking about how to bring private markets into their firms’ offerings.

Generative AI: A Game Changer

One big dividend from our decision to expand the range of topics in this year’s survey is the insights we gained around AI, and what it means in the eyes of asset managers.

ESG Exuberance Tempers

We revisited ESG and sustainable investing in this year’s survey to see if the torrid pace of growth cited in prior years was continuing. What we found is that while ESG is still a very important part of global asset managers’ strategy, the high expectations for future growth we saw in prior years of the survey have tempered.

When viewed over the four-year arc of the survey, survey respondent expectations for ESG portfolio implementation have come back to earth after the spike we saw in 2022 and 2023, landing back down near 2021 levels. For us, this indicates not that ESG is going away, but rather that it is settling into a more realistic long-term growth curve. Once again, environmental factors (the “E” in ESG) continue to be most on the radar of investors when it comes to sustainability.

Private Markets: A Puzzle to Solve

Private markets continue to be an area of opportunity for global asset managers but also an area of challenge, according to our survey. While asset managers like the concept of private markets for investment opportunity and diversification, they cited several challenges when it comes to implementation.

Difficulty integrating private equity into their investment lineup, liquidity concerns, and data gaps were cited as top-of-mind issues. This is not surprising given the historically slow pace of the development of global indexes which capture private equity market data and performance.

Index Providers in Demand

While our survey pointed out several categories that represent significant challenges for our clients, it was encouraging to see that asset managers’ top four areas to partner with index providers are for sustainable investing, direct indexing, thematic investing, and customized investment solutions. The survey shows that more than half of respondents believe that index providers and the services we offer will become more important to their success in the next 12 months. Importantly, about 20% expect to use more index providers in the next 12 months.

This is a very high-level snapshot of our survey findings. I invite you to take a deeper dive into this year’s results. I welcome your feedback and suggestions for future research.