Introduction to Asset Management
What are asset managers?
Also known as the “buy-side” of capital markets, asset managers are firms, divisions within banks, or individuals that invest money on behalf of their investor clients with the aim of increasing the total value of the invested assets over time. To do so, asset managers acquire, maintain, and trade investments with the potential to grow in value. The asset management industry today comprises a large number of funds with a diverse range of investment strategies – private equity funds, hedge funds, and mutual funds, just to name a few.
Types of Investment Strategies
Asset management strategies can be broadly identified under two branches: active management and passive management.
Active management entails the frequent buying and selling of shares to outperform a specific benchmark or index. It is actively managed by an investment team, making buy, hold and sell decisions about the assets in it. Investors attempt to beat the index (e.g. S&P 500) by constantly following market trends, political events, shifts in the economy, etc. to respond to the market accordingly.
Under the active management category, there are actively managed mutual funds, hedge funds, private equity, and venture capital.
Passive management sees an asset manager trying to match a certain market index (e.g. S&P 500, NASDAQ. etc) by owning all the stocks in the given index. Unlike an active management strategy, a passive strategy does not have a management team making investment decisions. This is because more risk and research is involved in active management, and it is a lot more costly.
Under the passive management category, there are passively managed mutual funds, and ETFs (exchange-traded funds).
While these two strategies are distinct, an asset manager could adopt both strategies when managing a portfolio to manage the risks and rewards both strategies entail. Traditionally, an active management strategy has thrived in a turbulent market while passive management has thrived in a predictable, stable market.
Over the past decade, there has been a shift from active to passive strategies in the public markets (Figure 1), partially driven by the underperformance of actively managed funds relative to benchmarks like the S&P 500. Over a 15-year period, almost 90% of active funds failed to beat the market, with hedge fund performance in particular weakening significantly in the past 10 years. Alongside this, a shift has thus been underway – actively managed mutual funds comprise just 52% of US investment funds in 2023, a clear downward trend from 81% in 2010.. This has prompted active managers to develop hybrid approaches, such as active ETFs, that keep the advantages of passive strategies while attempting to outperform benchmarks.
Figure 1: Total assets in active and passive mutual funds and ETFs and passive share of the total. (Source: Federal Reserve Bank of Boston)
Forward-looking trends
Shift towards customisation and hyper-personalisation in asset management
Customisation in asset management traditionally involved assessing an investor's risk profile and aligning it with suitable diversified portfolios. However, the industry is moving toward hyper-personalised solutions that leverage technology to tailor individual portfolios at scale. This shift reflects a growing demand for investment strategies that address unique financial goals, preferences, and values, offering a more granular and tailored approach.
A recent survey by Deloitte found that 76% of asset managers expect to increase their offerings of customised products over the next three years. This transformation represents a significant opportunity for asset managers to differentiate themselves by providing innovative, client-centric investment solutions.
These products will range from ESG customisation or negative screenings of popular indices, to more custom indexing, tax alpha through tax loss harvesting and efficiently managing concentrated positions.
This move, coming as investors seek portfolios that align more closely with their specific financial goals, risk tolerances and values, will be further facilitated by advancements in technology, particularly in artificial intelligence (AI) and machine learning (ML).
Digital distribution and technological integration
The shift towards technological solutions is transforming Asia's asset and wealth management (AWM) industry. By 2025, online distribution through robo-platforms, retail channels, and social media platforms is expected to overtake traditional methods, especially in markets like China, where direct sales channels already dominate. Digital tools allow investors to engage more seamlessly, making personalized portfolio management available to a broader demographic at lower costs.
This digital transformation extends beyond distribution, with firms integrating technology across the value chain—from robo-advisors providing tailored financial solutions for mass affluent and tech-savvy millennials to AI systems identifying trends and enhancing decision-making. As these digital solutions mature, the region’s tech-friendly environment, exemplified by regulatory support in Singapore and Hong Kong, accelerates innovation and competition.
Rise of ESG and alternative investments
Environmental, Social, and Governance (ESG) investments are becoming increasingly significant across Asia-Pacific (APAC). Supported by regulatory actions and millennial preferences for impactful investments, ESG products such as green bonds and social investments are proliferating. Countries like Japan and China are leading in green initiatives, with government and institutional efforts driving widespread adoption. For instance, China's Green Bond Grant Scheme aims to align growth with sustainability goals, meeting the dual demands of urbanization and ethical investing.
In parallel, alternative investments, particularly real estate and infrastructure, are experiencing robust growth, driven by urbanization and the Belt and Road Initiative (BRI). Alternatives are projected to double in size by 2025, presenting asset managers with lucrative opportunities. These trends demonstrate an evolving investment landscape where investors pursue alpha through innovative, purpose-driven assets.
1 Anadu, K., Kruttli, M., McCabe, P., & Osambela, E. (2020). The Shift from Active to Passive Investing: Potential Risks to Financial Stability? Finance and Economics Discussion Series, 2020(060r1). https://doi.org/10.17016/feds.2018.060r1
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