KPMG Asset Management Industry Insights for 2024

KPMG survey reveals the asset management industry’s views on economic factors and strategic initiatives for 2024

How are asset managers viewing the market and opportunities for 2024 after a year of interest rate increases, inflationary pressures, global conflict, a growing focus on generative artificial intelligence (GenAI), and the coming US elections?

To find out, KPMG LLP (KPMG) conducted a survey between November and December of 2023 (with the survey closed before the December 13 Federal Open Market Committee meeting), to obtain insights on both economic and strategic initiatives heading into 2024. Responses were collected from more than 170 asset management professionals in the US, primarily in C-suite and board roles, representing private fund managers, traditional fund managers, publicly traded entities, and institutional investors, investing across various asset classes including real estate, hedge funds, private debt, private equity, and public securities, with a majority holding $2.5 billion or more in assets under management (AUM).

Signals for interest rate cuts in 2024, a good sign for the market

The Federal Reserve has been fighting to bring down inflation by raising interest rates at the fastest pace in decades, starting in March of 2022. In our survey, a strong majority (68 percent) said the Fed would begin cutting rates sometime in 2024. More specifically, 58 percent anticipated a rate cut in the second half of 2024, with 10 percent saying easing would begin as soon as the first half of 2024. A third of respondents felt that the Fed would wait until 2025 or later to pursue easing.

The shift in language at the December Federal Open Market Committee meeting revealed that the Fed is not looking to push the economy into a recession to bring inflation lower. Bond and stock markets rallied on the news; however, caution is warranted to not get ahead of the Fed. December meeting minutes revealed that the committee had not started discussing rate cuts. Much still depends on the path of inflation and GDP growth.

For transactions and deal activity to pick up, the market needed a signal that rates aren’t increasing. The Fed’s December summary of economic projections revealed three possible interest rate cuts in 2024, which creates a more favorable and optimistic environment for asset managers in the new year. If the federal funds rate remains at 5.5% or climbs higher in 2024, a majority (64 percent) of our survey respondents felt their organization’s ability to deploy capital or grow would not be impacted. Sixty-eight percent said this rate, or a higher rate, would not be a challenge to the survival of their business in its current form/strategy. This contrasts sharply with 8 percent who expressed they were not confident in their ability to deploy capital and 11 percent who expressed a challenge to the survival of their business, if rates remained in this range or higher.

For many asset managers, higher rates may just be a return to more normal conditions, and hence, not an impediment to growth and activity, as the survey responses suggest. What we can take from all of this is that asset managers aren’t so much concerned about the level of interest rates as they are about their varying trajectory and timing. The survey responses reflect this point, as more than half cited stable market conditions—including interest rate certainty—as the top condition that would signal a favorable environment for transactions.

Availability of capital a risk factor; greatest returns predicted in private debt and private equity

Looking to 2024, asset managers do see some risks to their organization’s success. For 40 percent of respondents, the availability of capital to fund growth was the top risk factor heading into the new year. Many investors remain in a wait-and-see mode while market uncertainty around pricing unfolds.

Lack of liquidity in the credit market due to banks and traditional lenders tightening lending standards creates opportunities for private debt and other alternative credit vehicles. And only 22 percent of respondents chose availability of credit to fund growth as a risk, revealing that alternative sources of credit are being used and are available.

With these factors in mind, when asked which asset classes are anticipated to offer the greatest returns within the next three years, respondents chose private debt and private equity as the top two asset classes for return on investment (ROI), at 39 percent and 38 percent, respectively. This was followed by traditional assets (equities, bonds, EFTs) at 23 percent, real estate at 22 percent, and hedge funds at 20 percent.

With private equity dry powder hitting $2.59 trillion globally in 2023 there is plenty of capital available to fill the equity gap as debt comes due and new transactions take on a larger equity component.1 ?

Risks in talent, geopolitics at play ?

Respondents are concerned with operational matters like talent risk (including leadership, the ability to recruit and retain talent, and cultural issues) along with geopolitical risk and political uncertainty, at 34 percent and 33 percent, respectively.

Hiring talent may remain a challenge for the coming months. The labor market remained tight at the end of 2023 and we saw labor force participation cool in December as more than 670,000 workers left the labor force entirely; half of those leaving were over the age of 55. Early retirements, elder care and childcare needs have kept the over-55 crowd from participating at the levels seen prior to the pandemic. Prime age (25 to 54 years old) participation moved up in 2023 compared to the prior year; the number of workers holding more than one job hit a record high in the year, but this still has not been enough to meet the demand for workers.

In our survey, talent risk was greatest among respondents from smaller organizations, with less than $250 million in AUM. We do see asset managers of all sizes taking steps to counteract this risk, as implementing an employee value proposition to better attract and retain talent was cited as a strategic initiative by a third of respondents.

While geopolitical risk and political uncertainty concern is greatest among larger organizations with $1 billion or more in AUM, only 21 percent of all respondents are concerned with regulatory and tax matters as a potential risk to growth. This may suggest that asset managers foresee a divided government in Washington post-election, reducing the likelihood of any significant new regulations coming to fruition.

GenAI: A measured approach, for now

Companies across all industries and of various sizes are taking steps to bring GenAI into their operations, albeit tentatively at first. The asset management industry is no different, as our survey suggests that firms are aware of the potential emerging technologies, like GenAI, can offer, but are moving in a more exploratory phase for now.

By the end of 2024, 3 out of 10 respondents predict that GenAI will be able to execute 5 to 20 percent of daily tasks that they/their teams currently perform. Yet only 1 in 5 feel sufficiently knowledgeable in the use of GenAI, showing a skill gap that asset managers should address while handling their talent risk concerns. This is especially true with respondents, as adopting emerging technology was the highest strategic priority cited (at 65 percent), significantly outpacing implementing an employee value proposition to better attract and retain talent (at 33 percent).

Hybrid over return to office

Post-pandemic, many organizations are still challenged with bringing their workers back to the office. Some are offering hybrid arrangements, others are instituting full return-to-work policies, and some are allowing employees the option to continuing working from home.

Our survey found that asset managers trended toward having employees back in the office at least some of the time. Among respondents, 67 percent said their organization has adopted a hybrid working environment, and 26 percent said they are fully back in the office five days a week. “Fully remote” continues to be uncommon practice in the industry, at only 6 percent. ?

More to be done around gender representation??????????????????????

According to our survey, a third of respondents feel that progress on diversity and inclusion hasn’t moved fast enough within the asset management industry. On the topic of gender diversity, nearly half of respondents agree that achieving gender representation goals in their organization is important. Despite this concern, less than a third said their organizations are prioritizing these social initiatives in 2024.

In recent years, the asset management industry has shown some growth in this area, as the rise of minority- and women-led funds moves the industry to a more diverse environment.

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For more insights from the KPMG Asset Management practice visit our website.

(1) S&P Global Market Intelligence, “Private equity firms face pressure as dry powder hits record $2.59 trillion,” Muhammad Hammad Asif, Annie Sabater (December 13, 2023).

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