The winners and losers in an evolving funds management landscape

Three types of asset managers are well positioned for 2025, according to McKinsey, while another three are likely to face headwinds in the coming period as investor needs and objectives evolve. 

In its global asset management report, ‘The great convergence’, it said global assets under management reached US$147 trillion as of June 2025. In particular, individual investors were “doing the heavy lifting” this year, with rising asset values, strong wage growth, and low unemployment keeping new money flowing into managed accounts and ETFs.

The shape of the asset management market is also evolving as retail and HNW clients move away from a traditional focus on equities and fixed income to expand their portfolios into alternatives and private markets.

What was typically the domain of institutional investors is now accessible for lower-balance clients through semi-liquid and evergreen vehicles. As a result, these alternatives managers are quickly needing to expand their distribution teams to service the retail market, while traditional managers need to broaden their product range to meet this new demand.

To determine which firms will benefit in this new environment, the consultancy firm analysed the financial and operating results of 50 traditional and alternative asset managers to establish their fund flows and revenue growth, then broke those down into outperformers and underperformers. 

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“Most managers, traditional and alternative alike, rode the rising tide, but fewer did so with a similar surge in profitability. Margins stayed tight as costs kept climbing,” McKinsey said. “Yet some firms are pulling ahead, not merely by capturing market beta, but by pressing the full advantages of business model alpha.

“These firms are innovating in how the industry grows and delivers against client needs. In the new world of asset management, scale is important, but strategy clearly matters.”

Outperformers

Those asset managers that were seen as outperforming fell into three categories:

• Firms with access to propriety distribution: These firms benefited from access to the wealth channel, where end-client relationships provided them with resilience against market volatility and enabled superior pricing.
• Firms with scaled manufacturing platforms: Firms that had both active and passive products available had highly competitive fees and also benefited from the rise of ETFs.  
• Large multi-asset class alternative managers: Able to service both high-net-worth (HNW) and institutional clients, these firms benefited from their distribution into the private wealth channel. 

Underperformers

On the other hand, those asset managers that were seen as underperforming were:

• Firms dependent on active equity: These fund management firms are losing out from the shift to passive funds and ETFs, with the managed fund format being seen as ‘outdated’ by platforms and financial advisers. 
• Fixed-income specialists lacking differentiated capabilities: Although fixed income is seeing renewed interest in 2025, particularly for active bond strategies, McKinsey said firms that are unable to offer specialised products in this asset class, such as private credit or dynamic duration, would face headwinds. 
• Firms concentrated in institutional channels: These firms that rely on defined benefit pension plans face ‘structural stagnation’ and should move to diversify into areas such as wealth management and insurance.  

Earlier this year, research of Australian asset managers by Morningstar found specialist fixed income managers and private market managers were the only asset classes seeing positive flows. This was attributed to investors seeking defensive positions in light of concerns around US tariffs and trade policy which dented their risk appetite and pushed defensive asset allocations above historical averages. 

Commenting further on the convergence between public and private markets, McKinsey also said few fund management businesses have yet been able to successfully target both audiences. 

Recent developments in the space include a partnership between Wellington, Vanguard, and Blackstone to offer multi-asset funds, which integrate public and private markets; multiple private markets acquisitions by BlackRock; and ETF provider Betashares launching a private markets offering.

However, much of the activity so far has focused on those larger firms, which means there is still room for further M&A growth to be enacted by smaller players.

The report said: “Pursuing these new opportunities requires a blended set of capabilities that many managers have found challenging to build on their own: Alpha generation in illiquid asset classes exists within alternative managers, while the product and pipes for broad-based distribution sits with traditional managers. 

“Few have managed to build the other missing half organically. Hence the rush to partner, buy, or be bought – as the operating logic of the great convergence across traditional and alternative business models takes shape.

“The industry’s giants have led the charge in forming strategic partnerships and stitching together integrated offerings. There is still a long tail of smaller managers that lack the resources to compete at scale across both domains.”