Choppy Waters Ahead: How Asset Managers Can Find Opportunity in Today’s Market

After a decade of relatively smooth sailing, global markets hit an inflection point in 2022. A year marked by geopolitical tensions, continued supply chain challenges, and surging inflation presented a perfect storm of challenges. Asset managers faced increased volatility, equity market declines, lower interest rates, and higher costs of doing business. While many asset managers are holding up so far, how can they weatherproof themselves against longer term impacts of this market? Where should asset managers focus their efforts for the biggest impact? Before answering these critical questions, let’s take a closer look at the headwinds asset managers are facing today:

1. Performance declines across asset classes

Most of us are well aware of equity market’s substantial declines in 2022. The Morningstar U.S. Market Index lost 19.4% in 2022, leaving the stock market with its biggest annual loss since 2008. A big difference in 2022 compared to recent years was that investors couldn’t find respite in the bond market. With seven interest rate hikes throughout the year, 2022 was the worst year for fixed income in decades. The Morningstar U.S. Core Bond Index—which reflects a broad cross section of the government and investment-grade corporate bond market—lost 12.9% in 2022, its biggest annual loss in its performance history starting in 1999.

We also witnessed an increasing gap between the best and worst performers. Asset managers in the top quartile outperformed their peers in the bottom quartile by 29 percentage points, relative to gaps of 19 to 20 percentage points in the last two years.1

2. Reduced AUM

Assets under management for the U.S. fund business, including conventional funds and ETFs, declined $5.5 trillion in 2022 from $34.75 trillion at year end 2021, to $29.22 trillion at the end of 2022. Most of these declines can be attributed to market losses, not outflows.2


Source: Refinitiv Lipper, an LSEG Business.

3. Increased costs

Industry costs have increased by $71 billion over the past decade. In a recent paper, McKinsey identified these four categories as the largest areas of cost growth:

  • Investment management ($28B):
    Headcount to launch new strategies and meeting increasing demand for customized investment strategies
  • Management and administration ($12B):
    A large portion of this came from hiring senior leaders to help grow and evolve the strategies at firms
  • Technology ($11B):
    Systems and software to support complex investments, upgrades to legacy technology, and digitizing operating platforms
  • Sales and marketing ($9B):
    Hiring to meet the needs of new audiences


Given the challenges of managing reduced AUM and increased costs while offering products that align with changing investor needs, asset managers are seeking new ways to create efficiencies in their business. With all these pressures, how can asset managers best allocate their resources to prepare for what lies ahead?

Diversify your product offerings: Asset managers positioning themselves for success are focusing on more comprehensive solutions that produce a desired outcome for their investors as opposed to a single type of return. These solutions can take the form of managed accounts, multi-asset strategies, or advice delivered as a fee-based service. When uncertainty and volatility are present in the market, demand for solutions-oriented offerings has typically risen alongside it. Volatility is expected to continue in the months ahead, which could continue to drive interest in total portfolio offerings, like model portfolios. MDAs (multi-discipline accounts) are useful in these environments for their ability to enable asset managers to offer one investment that goes across asset classes and across strategy types.

Invest in a scalable operating platform: A scalable operating platform will be critical to asset managers as they seek ways to manage costs, make data-driven decisions, and deliver products across asset classes and in customized ways. Today’s inflection point is a good time to reassess whether your operations are positioned to support growth. Asset managers should be proactive by taking stock of which functions can be handled in house while outsourcing others that are better managed by service providers in ways that can save time and cost as the business scales.

Focus on personalization: Investors are increasingly demanding control over their investments. Separately managed accounts, model portfolios, and even “supermodels” that use technology to combine different model portfolios are increasingly appealing for their personalization capabilities. In addition, asset managers should look at technologies that allow portfolio customization at scale, as these capabilities will enable asset managers to offer advanced portfolio solutions to smaller clients, including retail investors.


It’s crucial for asset managers to remember that challenging environments are often the times that produce opportunities for future growth. Identifying and capitalizing on these opportunities will require managers to adopt a new set of tools and mindsets to gain a competitive edge. However, it’s important not to go at it alone. Working with the right service providers that not only offer value-adding technology, but the perspective and expertise needed to navigate this environment will be crucial to the industry’s success.


Download a PDF version of this article here.

1 McKinsey. The Great Reset: North American asset management in 2022, October 2022.
2 Seeking Alpha, January 16, 2023.

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