Fund managers today face challenges such as economic instability, evolving regulatory landscape, geopolitical risks, and inflation.
In this context, alternative investments could become an attractive choice for fund managers to offer their clients as a hedge against market volatility and economic turbulence.
Since 2016, alternative investment AUM has
tripled. Meanwhile, the AUM of private markets is
expected to grow at more than twice the pace of public assets, reaching
$65 trillion by 2032.
These numbers show the rising interest in alternative investments from the market participants.
What particular challenges asset managers face in 2025?
First and foremost, clients’ needs and requirements are changing as they demand more holistic solutions and seamless experiences to
maintain the trust of their own customers. This is particularly challenging as only a few asset managers have already adopted the practices needed to meet these demands.
Additionally, macroeconomic uncertainty and liquidity issues also present obstacles for asset managers. Factors like ongoing inflation,
slower GDP growth paces, and liquidity fragmentation in Europe pose significant risks. For example, global GDP growth has been slowing down to
3.1%. Consequently, alternative asset managers should
diversify their portfolios and devise more resilient strategies to offset the effects of economic risks and uncertainty. Liquidity management frameworks should also be strengthened to effectively tackle potential market turbulence.
Other than that, the balance between performance and relationship management could also become a stumbling block for asset managers.
In fact, the performance of investments continues to matter, but its role as a sole differentiator will decline amid other important factors. One of these factors includes the need to build trust and deliver tailored solutions across various client segments.
So, in future, competitive performance won’t be the single factor of a “winning formula.”
Ultimately, even though asset and fund managers face a significant number of challenges, they are manageable. There are ways to navigate
all these complexities and continue ensuring high-quality services amidst rising macroeconomic turbulence, relationship management problems, and the continual transformation of clients’ requirements.
Regulatory hurdles, and what to expect going forward?
Keeping up with the constantly evolving regulations under such frameworks as AIFMD, MiCAR, and SFDR is a big challenge. This is confirmed
by the fact that
41% of asset managers cite this as the greatest threat
to their operational activity. To comply with these changes, alternative investment fund managers (AIFMs), should implement new reporting systems, improve data collection processes, and train their staff accordingly.
Moreover, due to continuous regulatory revisions, regulatory bodies intensify scrutiny of liquidity management practices, primarily
under AIFMD II, forcing AIFMs to integrate more stringent liquidity monitoring frameworks. But despite the challenges it poses, the increased regulatory oversight actually enhances the appeal of the European market for professional investors, contributing
to stronger legal certainty and greater financial stability.
For instance, this is evident with the implementation of the EU’s regulatory framework for digital assets such as
MiCAR. By establishing clear rules around the issuance,
trading and custody of digital assets, MiCAR provides a transparent framework for mitigating risks associated with this relatively new asset class. Such initiatives both protect investors and foster innovation and legitimacy within the market.
Ultimately, although the evolving regulatory landscape indeed poses significant challenges for AIFMs, it simultaneously strengthens
the reputation of the European market and makes it a reliable, attractive and forward-thinking destination for investments. Those managers who can effectively navigate all these complexities and leverage the enhanced market credibility will be well-positioned
to draw the capital and thrive in the long run.