7 Key Asset Management Trends and How Firms Can Respond

The asset management industry is in the middle of a moment of rapid transformation. AI adoption, the convergence of public and private markets, and the proliferation of new investment vehicles are re-defining asset managers’ approach to building for scale.

Here, we share 7 top trends shaping the asset management industry today—and the steps asset managers can take to harness them.

Software is eating the world and the asset management industry is no exception. Technology-led distribution from turnkey asset management platforms to robo-advisors are now major drivers of investment strategy delivery.

As AI adoption accelerates and index-based strategies grow, asset managers are shifting to data-driven and rules-based models—bringing both new efficiencies and risks.

Asset managers are integrating AI into their investment processes, risk management, and client service. Our latest research found that more than half (55%) of asset managers believe generative AI will transform the industry in the next three years.

Among the asset managers we surveyed, 64% indicated that they are either likely or extremely likely to add more AI capabilities into their workflows in the next 12 months. While AI can support a wide range of tasks, the top AI use case among this group was research (35%).

But opportunities can come with risks. AI adoption may increase the frequency and sophistication of cyberattacks. Our analysts estimate the cost of a particular data breach is almost 50% higher for companies not using security AI and automation in their cybersecurity practices.

Indexes have evolved from market barometers, to measures of relative performance, to the blueprint for all forms of investment strategies. Indexes are effectively “code” for portfolio construction—delivering rules-based, transparent, and repeatable processes.

The decades-long shift in investor preferences from active to passive management represents the translation of human-led investment strategies into rules-based algorithms. As of December 2025, total assets under management in passively managed U.S. mutual funds and ETFs had grown to USD 19.4 trillion, while total assets in actively funds measured in at USD 16.0 trillion.

In Europe, active strategies continue to dominate. By the end of September 2025, total assets in active mutual funds and exchange-traded funds stood at around EUR 9.3 trillion, while passive assets totaled EUR 4.1 trillion.

More advisors are choosing to leave portfolio construction to the professionals and allocating their clients’ assets to model portfolios. Among the asset managers we surveyed, 59% reported an increase in advisor demand for model portfolios compared with three years ago.

Automated investment platforms are rising in popularity, creating opportunities for more accessible and affordable financial advice. Our assessments of the best robo-advisors focus on factors that most directly help investors reach their financial goals: fees, quality of portfolio construction and investment advice, and financial planning tools.

Once exclusive to wealthy individuals, personalized indexing strategies are now accessible to a broader audience, thanks to a combination of commission-free trading, the availability of fractional shares, and technological advancements.

Tax management is likely the most obvious attraction of direct indexing, but it also appeals to clients who have unique preferences that they would like to express in a more personalized portfolio.

What can asset managers do?

• Invest in digital infrastructure supporting personalization at scale.

• Start conversations with deeper questions that identify clients' goals.

• Identify how AI can sharpen investment strategies and improve distribution efficiency in workflows.

The convergence of public and private markets is redefining how portfolios are built. Private equity, credit, and real assets are becoming more accessible through semiliquid structures—registered funds that provide less-than-daily liquidity to investors and typically invest in illiquid asset classes like private credit and private equity.

At the same time, the ranks of large firms raising private capital continue to grow. As of April 2026, 1,643 private companies worldwide had achieved "unicorn" status, with USD 1 billion-plus valuations. This not only underscores the opportunity for asset managers but also the need for disciplined portfolio construction and liquidity management as private assets play a larger role in diversified portfolios.

What can asset managers do?

• Design portfolios that blend public and private exposures while accounting for liquidity constraints and valuation differences across asset classes.

• Develop semiliquid strategies with clear guardrails.

• Strengthen monitoring and governance frameworks to support transparency and client confidence.

For decades, ETFs were synonymous with indexing. Today, investors have come to recognize that ETFs are just a wrapper, one that is equally good for packaging passive strategies as active ones. Indeed, actively-managed ETFs now outnumber passive ones and the active ETF menu continues to expand at a record rate.

As the ETF menu has expanded in the direction of Active ETFs, flows have followed. Active ETFs took in roughly USD 475 billion in inflows, or about one-third of total net new flows for all ETFs in 2025.

For many asset managers, ETFs are a potential lifeline as active mutual funds continue to see outflows.

Strategic beta ETFs represent the marriage of active and passive approaches to portfolio construction—a rules-based, active approach delivered at a low cost in a tax-efficient wrapper. These funds tend to fetch incrementally higher fees than broad index funds.

What can asset managers do?

• Identify opportunities to deliver active strategies in a wrapper that meets the moment.

• Educate clients about the evolving nature of active management and the benefits it—in all its forms--can bring in the context of a diversified portfolio

Over the past two decades, the largest US asset management firms have steadily increased their market share. In 2025, the top five firms managed more than 60% of total AUM, while the top 25 accounted for nearly 90%. These firms have scaled their distribution, product breadth, and technology to a point where it’s difficult for smaller players to compete head-to-head.

Still, asset managers outside of the top 25 can find opportunities in targeted innovation in niche strategies, separately managed accounts, and values-based investing.

Industry consolidation has further accelerated fee compression. For decades, both asset-weighted and equal-weighted average fund fees have marched steadily downwards.

What can asset managers do?

• Consider alternative pricing models like performance-based or hybrid fee structures to help address mounting fees.

• Lean into your unique value proposition and competitive edge as an asset manager.

• Expand capabilities through strategic acquisitions or partnerships.

ETFs aren’t the only investment vehicle that’s taking market share from mutual funds. The largest US retirement plans started moving away from mutual funds years ago in favor of CITs and now hold 88% of all CIT assets. These pooled vehicles often offer similar strategies, like target-date strategies, for example, but they are less regulated and can be much less expensive for plan participants than traditional mutual funds.

CIT assets have nearly quadrupled over the past decade, growing from roughly USD 800 billion in 2013 to more than USD 3.2 trillion in 2023. Over the same period, mutual fund assets in defined contribution plans increased by just over 50%, from around USD 2.0 trillion to USD 3.1 trillion.

What can asset managers do?

• Diversify product offerings to meet investors’ demand for vehicles like ETFs and CITs.

• Understand the opportunities and risks of active ETFs.

• Clarify how different vehicles fit into portfolios to help clients understand the key trade-offs of these different packaging options.

Fixed income funds are getting attention again after interest rates have risen from their recent lows. Money market fund yields have stabilized at much higher levels than the previous decade, and flows have followed. Still, higher rates bring new risks, especially around monetary and fiscal policy.

Bonds are once again playing a central role in portfolios. Fixed-income funds have experienced renewed interest as investors seek yield with relatively lower risk compared to equities.

What can asset managers do?

• Reassess the role of cash and short-duration fixed income strategies in investors’ portfolios.

• Understand the opportunities and risks of active ETFs.

• Take a fresh look at their position their bond market prowess versus peers—active and passive, public and private.

Thematic funds’ sizzle often winds up being a Siren song. Still, thematic funds, mutual funds and ETFs that select their holdings based on exposure to one or more investment themes, have grown in size and number in recent years. Thematic strategies aim to capture long-term structural trends that often extend beyond the traditional business cycle. These themes range from the growth of artificial intelligence to the distinct consumer spending patterns of Generation Z.

Performance across themes has been uneven with periods of strong outperformance being often offset by sharp reversals. No single theme performs consistently year after year. Investor behavior further complicates outcomes. Investors’ performance chasing frequently results in poor timing decisions.

This dynamic can lead to meaningful gaps between a thematic fund’s total returns and the returns experienced by investors reinforcing the challenges of using these strategies over time.

What can asset managers do?

• Approach thematic strategies with caution and discipline.

• Develop thematic products with long-term structural drivers.

• Position thematic strategies intentionally within portfolios.

Successful asset managers are embracing these key trends, adapting to investors’ changing vehicle preferences, and delivering compelling investment solutions aligned with investors’ evolving needs.

Morningstar Direct is evolving in tandem with asset managers, building new tools like Direct AI Assistant and analytics like Portfolio Composition that paint a holistic picture of portfolios that span both public and private markets.

Asset managers leverage Morningstar Direct to bring their solutions to life and demonstrate their value in the context of a diversified portfolio.

The most common use cases include:

• Creating, editing, and analyzing portfolios.

• Stress-testing portfolios across a variety of market and macroeconomic scenarios.

• Drilling down into portfolio exposure, risk, and holdings-level data.

• Building reports to analyze competitive offerings across asset classes and Morningstar Categories.

• Presenting and communicating the value of their solutions with simple and intuitive visualizations.