Asset Managers Adjust Strategies Amid Shrinking Margins and Infrastructure Challenges

In the world of asset management, infrastructure is no longer just a supporting element; it's now at the forefront of strategic decision-making. According to recent findings from PwC’s report, the profit margins for asset managers are under significant pressure, having dropped 19% since 2018, with projections indicating a further decline of 9.1% by 2030. This evolving financial landscape demands that asset managers rethink their approaches to building, acquiring, and partnering in regard to capabilities.

The Financial Pressures at a Glance

The asset management sector is grappling with reduced profits per assets under management (AuM), forcing firms to investigate the underlying factors contributing to these declines. Drawing insights from 150 asset managers and 50 infrastructure providers, the PwC report identifies key barriers to scaling artificial intelligence (AI) capabilities. Notably, data fragmentation was highlighted, affecting 24% of respondents globally, while 17% pointed towards outdated legacy systems as significant obstacles. In North America, these numbers skew even higher, with 26% citing data fragmentation and 21% pointing to the absence of unified or real-time data pipelines.

Peter Pollini, the Financial Services Industry Leader at PwC US, emphasizes that while the latest AI technologies may attract attention, the firms that will thrive over the next five years are those that address foundational problems first. He noted, "The industry's profits per dollar managed have fallen by almost a fifth, and the bill for the pipes keeps rising."

A Competitive Arena: Infrastructure Management

The infrastructure landscape is turning competitive, with around 70% of providers anticipating a larger share of the asset management revenue pool. In North America, approximately 55% of providers expect moderate growth, with 68% recognizing hyperscale cloud firms as the primary emerging threat. This competitive shift underscores the business-critical importance of infrastructure decisions.

PwC’s findings suggest that 44% of asset managers lean towards hybrid sourcing strategies that combine in-house capabilities, purchased solutions, and partnerships. Specifically, in North America, 46% favor such a model, revealing a trend where 18% prefer to pursue partnerships while 16% choose to develop capabilities internally.

Emerging Infrastructure Archetypes

The report introduces four emerging archetypes of infrastructure in asset management: 1. Infrastructure Orchestrators – Firms that create a seamless integration of various infrastructure providers. 2. Digital and Tokenization Platforms – Incorporating blockchain and digital assets into management techniques. 3. Specialist Modular Providers – Firms that offer tailored infrastructure solutions catering to specific needs. 4. Integrated Asset Managers – Companies that manage all aspects of assets internally. The report highlights that no one-size-fits-all model exists; each company must evaluate its unique requirements to determine which capabilities to keep in-house, standardize, or outsource.

The takeaway is clear: firms that make timely and informed decisions about their infrastructure capabilities will be better positioned to control costs and protect their profit margins leading into 2030.

Conclusion

As the asset management industry navigates these transformative waters, the emphasis on infrastructure management is rising substantially. The firms that understand the value in tackling the basics first—optimizing their data management, legacy systems, and strategic partnerships—will not only thrive but will reshape the future of asset management amidst evolving market dynamics. While the allure of flashy technology is hard to resist, the firms that prioritize foundational improvements are the ones destined for long-term success.