A new 2023 KPMG Asset Management CEO Outlook was released this week to collect CEO perspectives on their business and the economic landscape over the next three years.

Asset management CEOs are a little less confident about economic growth in 2023 than they were the previous year, with 83 per cent believing that rising interest rates and tightening monetary policies could prolong a potential recession, according to a survey by KPMG.

Nevertheless, most CEOs are still optimistic about the global economy and asset management itself, with 76 per cent confident of growth in the industry and 73 per cent having confidence in their own company’s growth prospects.

The survey covers 80 asset management leaders of organizations with revenues of at least $500 million, based in Australia, Canada, China, France, Germany, India, Italy, Japan, Spain, the UK and the US.

Such findings underscore how, after the long equity bull run from 2008 to 2019, life has turned more volatile for asset managers. Rising inflation, interest rates and geopolitical uncertainties have added to cost pressures on firms managing money. The sector has also seen shifts toward "passive," low-fee entities such as exchange-traded funds, and a switch toward more "alternative" assets such as private equity. 

Over the next three years, 89 per cent of the CEOs surveyed anticipate growth in organizational earnings and 84 per cent think they will employ more people.

Political uncertainty has also risen to become the greatest perceived threat, with 16 per cent mentioning it in 2023, up from 4 per cent in 2022, the research shows. This is followed by interest rate risks and emerging and disruptive technology, including generative artificial intelligence.

CEOs are concerned about a lack of regulations and direction for generative AI, with three-quarters agreeing such regulation should mirror that for climate change. They also see generative AI as a technology that will take time to provide a return on investment, with 69 per cent saying this will take more than three years after implementation.

Nevertheless, generative artificial intelligence is seen by CEOs as an important investment opportunity, particularly for product and market growth, efficiency and productivity, fraud detection and cyber-attack responses.

ESG
Most asset management CEOs expect to see ESG investments taking at least three years to provide returns. Net zero greenhouse gas emissions are their most mentioned specific priority. The majority of these CEOs say they are willing to take a political or social stand on a contentious issue and divest a profitable but reputation-damaging part of the business.

Talent
Attracting and retaining talent has risen to the top of asset management CEOs’ list of operational priorities, with 26 per cent of respondents mentioning it in 2023 compared with 17 per cent in 2022. This is followed by inflation proofing and advancing digitization and connectivity measures.

“Attracting and retaining talent is a major issue. One approach is to clarify the positive role that asset management and capital can play in society. How do you get to net zero, how do you get transition of companies and economies without capital and asset management? That message doesn’t always get amplified but it links to the importance of underlying purpose,” Andrew Weir, global chair, asset management, KPMG International, said.

One of the biggest shifts between 2022’s research and this year is seen in the increasing interest in mergers and acquisitions, with 58 per cent saying they have a high appetite and those with low appetite declining from 17 per cent last year to 6 per cent in 2023. The Asia-Pacific region in particular is experiencing increased demand for asset management platforms and other emerging markets are relatively new to asset management, both driving appetite for acquisitions, the survey reveals. In developed markets there are pressures for companies to increase scale, and mergers offer a way to achieve this, although they need to be undertaken with care so that they are successful in increasing value.

Most asset management CEOs surveyed also see cybercrime and cyber-attacks as pressing concerns, with 28 per cent adding that their organization is under-prepared for an attack. The most common reason for under-preparedness, mentioned by 45 per cent, is the increasing sophistication of new developments such as with generative artificial intelligence as a contributing factor with vulnerable legacy systems or infrastructure mentioned by 27 per cent and shortages of skilled personnel by 14 per cent.

Most of those surveyed also believe that employees are likely to be rewarded if they work in the office rather than remotely. Just one-tenth expect all office work to be carried out remotely in future, the firm said.