- 81% of managers expect increased inflows to their funds in 2025, while 84% predict an increase in the number of fund launches in their sector; 42% predict a ‘dramatic’ increase
- 83% of institutional investors expect stock market volatility to rise this year, fuelling demand for private markets as a source of downside protection and diversification
- ETFs are set to grow as a proportion of AUM, with 82% of institutional investors agreeing that investors are moving ETFs from short-term allocation strategies to core portfolio holdings
- 88% of fund managers expect to grow their use of third-party service providers over the next 12 months as they respond to increasing regulatory complexity and rising investor demand for higher standards, better reporting and more transparency
Fund managers are predicting significant increases in inflows and product launches in 2025, as they look to capitalise upon growing investor appetite for alternative assets and ETFs. However, growing regulatory complexity and client pressure for higher standards are driving increased outsourcing of non-core functions, according to new research from Carne Group.
Its annual report into industry ambitions and expectations for the year ahead, Change 2025, surveyed 251 international C-suite executives in fund management and 200 institutional investors, together responsible for more than $4.6 trillion in assets under management (AUM).
When questioned on their outlook for fund flows this year, fund managers responded positively, with the vast majority (81%) expecting to see an increase in the flow of new capital into their funds and segregated accounts during 2025.
84% expect the number of new funds launching in their sector this year to be higher than in 2024. Moreover, 42% predict this increase to be dramatic, compared to just 14% of those surveyed last year.
Alternatives dominate demand, as investors seek protection from continued volatility
Drilling down into the asset classes set to benefit the most from inflows, fund managers are firm in their belief that demand for private markets will continue to boom in 2025, with hedge funds and private equity being the alternative asset classes expected to see the biggest increases in fundraising this year.
84% of fund managers expect the level of fundraising by hedge funds to increase compared to last year, with 57% predicting a dramatic increase, while 72% expect an increase in flows to private equity and 31% a dramatic increase. The corresponding figures for real estate are 71% and 33%, while for private debt they are 59% and 24%.
The appetite for these asset classes, which provide diversification, downside protection and hedging opportunities, looks set to be supported by market conditions, with more than four in five institutional investors (83%) believing that the level of volatility in stock markets will rise this year, up from 67% of those surveyed last year.
This predicted increase in volatility comes hand-in-hand with a rise in risk appetite. Almost seven out of ten institutional investors (69%) predict that their organisation’s appetite for risk will be higher this year, with 7% believing levels will be much higher.
Continued rise of ETFs also contributes to sector growth
Exchange-traded products remain front of mind both for institutional investors and for asset managers looking to service client demand in 2025. 89% of the equity and fixed income fund managers Carne surveyed currently offer either ETFs or ETPs – of those who don’t, 89% expect to offer them within the next three to four years.
In terms of AUM, three-quarters of the managers surveyed say ETFs already account for between 10% and 15% of their total assets. Managers expect this proportion to grow over the next five years, which is also in accordance with investor expectations: 82% of institutional investors surveyed agree that investors are moving ETFs from short-term asset allocation strategies to core portfolio holdings. Of these, 17% agree strongly.
Almost all fund managers expect regulation to become more complex
Regulation continues to play a critical role in the evolution of the fund management sector. 98% of fund managers and 99% of institutional investors questioned agree that regulatory complexity will increase over the next two years.
However, managers are increasingly recognising that support from specialist third parties can allow firms of all sizes to ensure regulatory compliance while also meeting the high standards expected by investors across multiple asset classes and jurisdictions.
88% of fund managers questioned about their middle and back offices expect to increase their use of third-party service providers over the next 12 months, with 49% anticipating a dramatic increase.
Managers say the biggest incentive for outsourcing to external providers is a request for higher standards, better reporting and more transparency from clients. This is followed by the growing burden of regulation, difficulty in recruiting and retaining appropriate staff, and operating in more jurisdictions.
Institutional investors also plan to rely more heavily on external providers this year. More than two-thirds (67%) will increase outsourcing in 2025, with 40% expecting a dramatic increase, which is much higher than last year’s 20%. When asked to give the main reasons for increasing outsourcing, institutional investors showed most concern about the ability to meet client requests for higher reporting standards, followed by the growing burden of regulation.
Commenting on the findings, John Donohoe, CEO and Founder at Carne Group, said: “With fund managers anticipating a year of increased inflows and product launches, 2025 offers grounds for optimism to a sector that has been contending with significant challenges, from market volatility and continued focus on fees to industry-wide consolidation. For managers looking to embrace this optimism, it is clear that investor demand for alternative asset classes and the growing popularity of ETFs are two of the most critical opportunities for growth over the coming years.
“Nevertheless, managers will have several challenges to navigate in order fully to seize these opportunities, with our research indicating that increasing regulatory complexity and client pressure for higher standards will be front of mind in the year ahead. At the same time, competition within private markets is becoming fierce, with managers vying to seize the best investment opportunities, deploy funds effectively at attractive margins, and penetrate new client segments for additional capital inflows. Against this backdrop, managers are increasingly recognising that outsourcing non-core functions to third-party specialists can offer transformative improvements in operational resilience and efficiency.”