The evolution of traditional Asset Managers: adapting to a changing market
25 FEB, 2025
The traditional asset management industry is experiencing a period of stability, supported by market growth, strategic diversification, and strong operational structures. According to a January 2025 report by S&P Global Ratings, most traditional asset managers have stabilized their credit metrics after benefiting from favorable market conditions in 2023 and 2024. However, challenges such as market volatility, shifting asset mixes, and the continued rise of alternative investments are reshaping the landscape.
Market performance and AUM Growth
S&P Global Ratings notes that market performance in 2024 supported an increase in assets under management for traditional asset managers. This growth has provided a cushion against credit metric deterioration, ensuring financial stability for many firms. With higher AUM, traditional managers have seen increased management fees, a primary source of revenue.
Additionally, some active managers have been able to outperform the market during periods of dislocation, supporting inflows despite ongoing competition with passive investment strategies. While the broad shift from active to passive strategies has slowed in the U.S., traditional managers remain cautious about expecting significant new investments in active products.
Expansion into alternative investments
To maintain competitiveness and diversify revenue streams, several traditional asset managers have actively expanded into alternative investments through mergers and acquisitions (M&A). According to the S&P report, BlackRock recently announced its acquisition of HPS Investment Partners to scale its private market capabilities, following previous acquisitions of Global Infrastructure Partners and Preqin.
Other asset managers have pursued similar strategies: Franklin Resources acquired Lexington Partners and Alcentra to expand its exposure to private credit and secondaries, AllianceBernstein strengthened its alternative investment division by acquiring CarVal in 2022 and Amundi expanded its footprint in private markets by acquiring Switzerland-based Alpha Associates in 2024.
This trend reflects the industry's response to investor demand for private credit, infrastructure investments, and other alternative asset classes, which offer higher yields and greater diversification. While this diversification is generally viewed positively, the report highlights that debt-funded M&A could pressure credit metrics and introduce integration risks.
Credit risks and profitability challenges
Despite stability, traditional asset managers remain exposed to market fluctuations, which directly impact AUM and profitability. S&P Global Ratings warns that further shifts in asset mix—particularly into lower-yielding assets—could lead to declining margins. Managers with less diversification or weaker investment performance may also face elevated redemption risks.
Additionally, while net flows have improved for many firms since 2023, S&P expects continued variation in fund flows across different managers and asset classes. Firms with broader diversification are likely to maintain more stable net flows over the long term.
Conclusion
Traditional asset managers have successfully navigated recent market conditions, stabilizing their financial positions through AUM growth and strategic expansion into alternative investments. However, ongoing challenges such as market volatility, shifting investor preferences, and debt-financed acquisitions require careful risk management. As the industry evolves, managers with strong diversification, flexible operating structures, and disciplined financial policies will be best positioned for sustainable growth in 2025 and beyond.
