Navigating 2025: Key trends in investment management

Bradley Mehl

January 7, 2025

The investment management sector is gearing up for significant changes in 2025, shaped by advancements in technology, shifting client expectations, and economic pressures. According to one survey, 16% of firms will either go out of business or be acquired by 2027. Bradley Mehl, Managing Director at Kurtosys, shared his insights into the trends set to influence the industry.

Fee pressures and industry consolidation

Rising fee pressures are pushing investment managers to offer more cost-effective options. “Clients won’t accept the high fees of the past,” Bradley noted. This shift has already driven assets away from traditional mutual funds towards exchange-traded funds (ETFs) and actively managed ETFs with assets in passive funds now surpassing actively managed funds.

Consolidation is another major trend, with firms merging funds, reducing share classes, and phasing out underperforming products. “A brochureware website or white paper alone is no longer enough to attract investors,” Bradley explained. Today’s clients, equipped with digital tools, can compare fund performance and fees instantly.

Alternative investments, such as private equity, are also gaining popularity as returns from traditional markets wane. Larger firms are increasingly steering client assets into these non-traditional opportunities to seek higher returns.

The market is evolving quickly, and investors are no longer satisfied with off-the-shelf products. Firms must embrace flexibility, innovation, and personalisation to remain competitive.

Bradley Mehl

Managing Director (South Africa), Kurtosys

The rise of artificial intelligence

Artificial intelligence (AI) is gradually transforming the investment management landscape, primarily by enhancing efficiency. “Around 90% of firms currently use AI to save time, not make investment decisions,” Bradley said. Applications include automating repetitive tasks and generating commentary. The AI market size is currently around $4.62 billion and is expected to increase exponentially in the future.

AI’s potential extends to predictive analytics, where some firms are exploring large language models to process massive datasets and forecast market trends. However, adoption is hindered by challenges such as data quality. “AI is only as effective as the data it analyses,” Bradley emphasised.

In client reporting, AI could enable the creation of highly customised, automated reports. “Tailoring reports at this level would have been unimaginable a few years ago,” Bradley remarked.

Enhancing user experience with simpler platforms

Improving user-friendliness is a key focus for platform development. “Creating a genuinely self-serve platform is one of the biggest areas of focus for Kurtosys as a business,” Bradley shared. Innovations like natural language AI, which enables database queries without coding, are making tools more accessible for non-technical users.

Customisation is another priority. Clients increasingly expect tools and reports tailored to their unique preferences. “Meeting these demands ensures client loyalty with around 60% of clients judging the company’s level of innovation based on the communications they receive,” Bradley added.

Cloud technology and cost management

Cloud technology has become a staple in the industry, but managing associated costs remains a concern. “Platforms like Snowflake and Databricks offer flexibility but can lead to unexpected expenses if not carefully controlled,” Bradley explained. Investment firms must balance the benefits of cloud database capabilities with cost efficiency.

Strengthening data security

With the rise of cyber threats, robust security is essential. “A single breach can damage a firm’s reputation irreparably,” Bradley warned. Regular testing, layered security measures, and updates are non-negotiable to protect sensitive client data.

ESG and sustainability challenges

Sustainability and ESG (Environmental, Social, and Governance) factors are increasingly important to clients, but balancing these considerations with performance is key. Bradley noted a regional divide: Europe prioritises ESG, while US clients often focus on returns.

“Clients expect funds to be ethical without compromising performance,” Bradley said. This balancing act remains a key challenge for the industry.

Preparing for the future

Investment managers need to embrace flexibility, innovation, and personalisation to keep pace with rapid changes. “The market is evolving quickly. One survey that I read predicted that over 75% of asset managers would increase their customised product offerings within 3 years as investors no longer want off-the-shelf products,” Bradley advised.

Digital distribution should reduce costs and allow asset managers to access a broader audience with greater personalisation at a lower cost. “I believe that the industry needs to move towards an Amazon-like experience while still complying with all the rules governing the sale of products.”

There is a movement towards tokenisation (using Blockchain) of traditional securities and cash. This presents challenges and opportunities around the settlement process which may include integrated cash settlement and fractional ownership.

In conclusion, the asset management industry is on the cusp of considerable transformation as we approach 2025. With a focus on client-centricity, alternative assets and sustainability, asset managers will have to adapt to remain competitive in this ever-changing and challenging landscape.

As investors seek personalised experiences and innovative investment options, those firms who prioritise these by implementing the most appropriate technological solutions will not only meet client expectations but also thrive.