Feb 23, 2023

The following blog post is one in a series of Cutter 2023 Trends that provide insights into industry challenges and considerations for our clients and member firms in 2023 and beyond.

Although no single asset type performed particularly well in 2022, as asset managers and asset owners look forward to 2023, the industry’s leading managers are pursuing operating model improvements to better provide value to their clients and to find alpha.

For public markets, we may see a resurgence of active management, and while alternative assets did not perform well in 2022, we predict that firms will increase their investment in alternatives and diversify the types of alternative assets they invest in.

We see evidence of this through recent events, including a bill signed into law in late December that allows the New York public pension funds to raise their alternative investments allocations from 25% to 35% and fund companies acquiring shops that specialize in alternative investments, such as Franklin Templeton buying private equity manager Lexington Partners and real estate firm Clarion Partners (through its acquisition of Legg Mason).

Not only do we see firms expanding their investments in private equity, they also will look to private debt, middle-market loans, infrastructure, real estate, and other real assets. Firms need the right tools to support the investment process for these instruments, including the complex multi-level fund structures, cash flow modeling, forecasting, trading, accurate performance, and exposure reporting, with the ability to roll it all up into a total portfolio view.

Investment in tools that allow for complex multi-level fund structures, unstructured data collection/aggregation, and other cutting-edge technologies will enable continued investment in diverse asset classes. Blockchain/distributed ledger technology (DLT) and support for asset tokenization, regardless of when, or if, the world of cryptocurrency and non-fungible tokens (NFTs) recovers will continue to evolve. We see DLT being used to introduce new types of tokens, reduce transaction settlement times, lessen trading errors, and cut costs. While all this is unlikely to come to fruition in 2023, we believe managers will increase their investment in this technology year over year.

In addition to using modern data platforms and analytic tools, AI, machine learning, and robotic process automation (RPA) are technologies that will play a critical role in streamlining the investment process, regardless of asset class. Firms will increasingly employ AI and ML to collect, “read,” and process the unstructured data needed for alternative assets. And these technologies will become easier to use as firms enable operational efficiencies and standardized processing. Moreover, managers’ use of data science, predictive analytics, natural language processing (NLP), enterprise content management, and modern collaboration tools will modernize the investment-decision support process and maximize the value of their research teams.

While our industry still faces market uncertainty and consolidation pressures, we will continue to see leading managers invest in process automation, technology, and data management as ways to ensure their success and differentiate themselves.

To speak with a Cutter analyst or consultant about this trend, contact us at [email protected]. For more 2023 trends, see our whitepaper Trends in Asset Management: 2023 and Beyond.