As investors and asset managers confront unprecedented pressures, the landscape of fund management is entering a new era. Transformative shifts across products, markets, and technology are driving firms to reimagine strategies and operations. This article explores the key themes shaping the future of finance and offers practical insights for staying ahead of the curve.

Macro context: why fund management is transforming

In recent years, fund managers have faced fee compression and cost pressure that challenge traditional business models. Globally, average asset management fees have declined from 27 basis points in 2018 to just 21 basis points in 2023. Moreover, fees on 2024 net inflows were about 40 basis points lower than on existing assets.

Market environments have grown more volatile as rate regimes shift. Leading firms characterize 2025 as a “halftime reset,” urging clients to stay active and stay invested through heightened uncertainty. At the same time, aging demographics and the decline of defined benefit pensions underscore the need for outcome-oriented and blended public–private strategies to secure retirement incomes.

Competition has never been fiercer, with traditional managers contending with fintech, big tech, insurance companies, and alternative investment platforms. These players are converging, blurring boundaries between asset management, advisory services, and insurance solutions.

Product innovation: what investors will own

To meet evolving client needs, asset managers are expanding beyond traditional mutual funds. Innovations in product design are unleashing new opportunities for liquidity, customization, and impact.

Shift from mutual funds to ETFs and new wrappers

While mutual funds still hold the lion’s share of assets, the industry is witnessing a rapid migration toward exchange-traded funds (ETFs), especially active ETFs. Nearly half of surveyed managers anticipate converting existing mutual funds into ETF structures to offer intraday liquidity with lower costs. Semiliquid and pooled alternatives have also gained traction, growing at a compound annual rate of 19% since 2018.

Rise of alternatives and blended public–private products

Alternatives are moving from the fringes to the mainstream. Private equity commands 54% of total private capital fundraising, and professionals expect private debt and equity to deliver the highest returns over the next three years. Managers are crafting blended public–private credit solutions and evergreen vehicles to balance yield, liquidity, and fee structures.

Customization, direct indexing, and SMAs

Personalization is redefining investment strategies. Approximately 80% of asset managers view “customization for the masses” as a cornerstone for future growth, and 76% foresee a surge in direct indexing over the next five years. By 2026, direct indexing and separately managed accounts (SMAs) may exceed US$3 trillion in assets.

• Tax optimization through individual security tax-loss harvesting
• ESG or values-based portfolio overlays
• Customized risk and sector tilts

This shift demands robust operational infrastructures to handle trade routing, fractional share execution, and dynamic tax-lot management.

ESG, values-aligned, and impact investing

Environmental, social, and governance (ESG) integration is rapidly becoming the norm rather than the exception. Over 55% of managers rank full ESG integration among their top three industry priorities, and 87% plan to increase ESG-focused strategies. Growth areas include climate-oriented funds, thematic impact investments, and multi-asset sustainability solutions. Yet, challenges around data comparability and greenwashing risk persist, requiring vigilant governance and transparency.

Technology and data: how funds are managed and delivered

Technology is the engine powering innovation in fund management. From artificial intelligence to blockchain, firms are leveraging advanced tools to enhance decision-making, drive efficiency, and personalize client interactions.

AI-driven portfolio management and research

AI has moved from pilot projects to production at scale. Investment teams now deploy machine learning models to analyze vast datasets, uncover hidden correlations, and automate dynamic risk management. Generative AI streamlines operations, marketing, research, and client servicing, promising rapid returns on technology investments.

• Automated trade reconciliation and post-trade processing
• Report drafting, commentary generation, and back-testing
• Custom marketing campaigns and targeted communications
• Natural-language interfaces for research queries

Early adopters enjoy a competitive edge, while others grapple with data governance and model-risk management.

Data as a strategic asset

Data and analytics rank as the top trend for asset managers over the next five years. Firms are unifying data models across investment, risk, and distribution, migrating to cloud-native infrastructure, and deploying advanced analytics to refine product design and distribution strategies.

Client experience, personalization, and digital channels

Personalized digital experiences are central to tomorrow’s fund distribution. AI-driven recommendation engines, real-time dashboards, and chatbots deliver tailored guidance and 24/7 support, shifting the industry toward advice- and solution-led models. Balancing mass-personalization with regulatory suitability requirements remains a critical challenge.

Blockchain, tokenization, and DeFi in fund management

Blockchain is redefining operational backbones. Smart contracts automate transfers, distributions, and compliance checks, reducing manual errors. Tokenization unlocks fractional ownership of illiquid assets, while decentralized finance concepts hint at programmable fund structures and automated market-making. Regulatory clarity and legacy integration continue to evolve.

Cybersecurity and RegTech

As digital footprints expand, cyber risk has surged. Advanced encryption and advanced AI-driven anomaly detection safeguard client data, while real-time threat monitoring strengthens defenses. Meanwhile, regulatory technology (RegTech) solutions automate compliance monitoring, rule updates, and predictive risk analytics, helping managers navigate a complex rulebook with greater agility.

New operating and business models

To sustain innovation, asset managers are rethinking their operating architectures. Partnerships with fintechs, outsourcing non-core functions, and adopting modular, cloud-based systems are enabling greater agility and scalability.

• Agile technology architecture and modular platforms
• Partnership-driven service delivery models
• Selective outsourcing of operational processes

These approaches allow firms to focus on their distinctive strengths—be it portfolio management, client relationships, or product innovation—while maintaining cost efficiency.

Regulation, risk, and the path ahead

Regulatory landscapes are tightening around investor protection, ESG disclosures, and digital asset frameworks. Fund managers must enhance risk-management capabilities, stress-test new products, and ensure transparent reporting. By embedding risk and compliance into design processes, firms can accelerate innovation while maintaining trust.

Conclusion

The future of fund management lies at the intersection of product evolution, technological empowerment, and operational resilience. Managers who embrace robust data-driven decision-making frameworks, prioritize client-centric solutions, and foster collaborative ecosystems will be best positioned to thrive. As the industry navigates this transformative journey, innovation will remain the ultimate differentiator—unlocking value for investors and shaping the next chapter in financial history.