BDO’s 2024 Asset Management Forecast: 5 Predictions for the Year Ahead
As high interest rates and investor uncertainty continue to hamper the market, now is the time for asset management firms to reinvest in their practices. Lessons learned from past bear markets show that asset managers who take time during a slowdown to refresh their approach to investing and reporting come back stronger in a bull market. In the year ahead, asset managers should update decision-making processes, improve transparency, and prepare to make big bets on emerging technologies.
Read on to learn more about BDO’s predictions for asset management firms in 2024.
Expect interest rates to stay high in early 2024 as the Federal Reserve waits for inflation to cool. Consumer spending will persist, though likely at a slower rate due to depleted savings and high credit card debt.
The continued slowdown of consumer spending will cause some investors to shift to more conservative investments, while others will stay frozen until interest rates begin to decrease later in the year. A smaller number, hoping to get ahead of a resurgence of activity later in the year, will see the slowdown as an opportune time to invest.
Under these conditions, portfolio diversity is key. Asset managers should bet on a healthy selection of lower-risk investments in the short term and refrain from pushing clients to take uncomfortable positions until the market improves.
After pulling back on major transactions in 2023, firms will use downtime in 2024 to scope out acquisitions and conduct due diligence, preparing to jump back in when conditions are favorable. When deal activity resumes, expect a flurry of acquisitions as firms seek to deploy their pent-up capital.
Most of this action will occur in the latter part of 2024, when many speculate that interest rates will decline. This means that any companies planning to conduct major transactions in 2024 — or even through 2025 — should set the stage now. This includes defining strategic deal objectives, building a pipeline, and assessing and strengthening internal controls to avoid compliance hurdles and maintain readiness. Need help with transaction planning? We can help.
Major players are emerging in the AI enterprise landscape, where many fast-growing companies have been competing for a foothold. Next year, expect a number of early-stage startups to taper off as larger companies develop and democratize what was once niche AI technology.
Major investment firms are already betting big on AI — and AI companies are likely to accumulate larger amounts of venture capital in 2024. Venture capital interest can indicate a strong potential for high growth and returns, meaning investment managers have reason to feel cautiously optimistic. At the same time, overinvestment or overvaluation can lead to valuation crashes. Investors should prioritize targets with a clear path to profitability.
Asset managers who have not prioritized sustainability strategies — particularly those that overlook material ESG risks like poor climate adaptation planning, insufficient sustainability data disclosure, and human capital management issues — may dull their competitive edge in 2024. Finance leaders are beginning to understand the risk to their returns: According to BDO’s 2023 Private Capital Survey, 80% of fund executives have turned down a deal due to concerns around ESG strategy or risks. This suggests investors increasingly view ESG risk assessments as a core component of due diligence, a notion supported by the proliferation of sustainability and ESG-screened funds in 2023.
If passed, the SEC’s proposed climate-disclosure rule will have a tremendous impact on the asset management industry. The rule would require publicly traded companies to disclose climate-related information in reports, including:
- Material risks posed by climate change to business and financial statements
- Governance of climate-related risks and risk management processes
- Greenhouse gas emissions
Asset managers should prepare now for the impact this rule will have on their investments if it is to take effect. And even if it does not, governing bodies’ push for increased oversight — a reflection of growing investor demand for transparency — is unlikely to disappear. Asset managers who take a proactive approach to ESG strategy can increase transparency and investor confidence while driving higher returns through the mitigation of ESG risk factors.
As uncertainty continues into 2024, asset managers who maintain a tax-aware investment strategy will be best positioned for success. Investment leaders should educate their teams about how tax issues and implications could impact clients and help adjust strategies where necessary.
Tax policy changes shape investment strategy, and , although bipartisan legislation is currently being considered by both houses of Congress, sweeping policy changes are unlikely in the near term. Moreover, asset managers should be aware of policy changes that may occur in the future. For example, provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 will expire in 2025, creating concern about how the changes will impact tax and investment strategy. Certain provisions, such as the state and local tax (SALT) deduction cap and bonus depreciation, are already garnering bipartisan support and may be extended, but asset managers should prepare now for any possible outcome. Not sure how changing tax strategy might impact your business? Get in touch.
SHARE