Middle East asset management sector grows 13% to $2.3 trillion

The global asset management industry’s assets rose to nearly $120 trillion in 2023, with the Middle East’s asset management sector among the fastest growing in the landscape. That is according to research from Boston Consulting Group.

The study by the global strategy and management consulting firm found that all parts of the world participated in the recovery, with the growth of assets under management ranging from 16% in North America to 5% in Asia Pacific.

The Middle East’s asset management sector saw its assets under management surge by 13% to $2.3 trillion, emphasising the region’s growing standing in the global asset management landscape, according to Boston Consulting Group report.

Alternative asset classes, such as private equity, hedge funds, managed futures, art and antiques, commodities, and derivatives, continued their growth to hit $24 trillion. And notably, while alternatives represent just one fifth of total assets under management, they last year managed to generate more than half of global revenue.

The authors also found that passive funds – an investment vehicle that tracks a market index and typically sticks to its course for a longer period of time – are becoming increasingly popular.

In 2023, passive products captured the lion’s share of net flows. attracting 70% of total global mutual funds and exchange-traded funds (ETFs) net flows (about $920 billion). That was a sharp rise compared with the period from 2019 through 2022, when 57% of net flows went into passive products.

Challenges ahead

Despite the growth booked in 2023, Boston Consulting Group warned that the landscape for asset managers is becoming more challenging. Organic growth opportunities are slowing, costs are rising, fee compression is taking place, and fewer new products are surviving despite attempts at innovation, amongst numerous challenges.

“The asset management industry continues to face structural challenges,” said the authors. “To remain competitive and boost profitability in the face of the five fundamental pressures, asset managers should use an approach that we call the three P’s – productivity, personalization, and private markets.”

Increased productivity can make a big difference in just about every organizational function. Improved personalization can facilitate the development of products tailored to the unique needs of customers, enhance the customer experience, and enable asset managers to distinguish themselves effectively from competitors. The expansion into private markets can help asset managers focus on higher-margin products to diversify revenue.

Invest in AI

Lukasz Rey, Managing Director and Partner and Middle East Head of Financial Institutions at Boston Consulting Group, said that unlocking the P’s will require asset managers to embrace artificial intelligence (AI), and its little sister, generative artificial intelligence (Gen AI).

“Embracing AI is no longer optional but necessary for maintaining competitiveness. By investing in AI-driven productivity, personalised product offerings, and the expansive potential of private markets, asset managers can navigate the slowing growth in traditional areas and spearhead innovative, scalable solutions,” he said.

In the area of productivity, AI can help streamline complex processes and automating tedious tasks, in the process freeing up valuable human resources for more strategic pursuits. “From data analysis and trade execution to reporting and compliance, AI can optimise operations across the board,” said the report.

In the area of personalisation, AI can analyse vast datasets to understand and anticipate client needs. “This allows for the creation of tailored investment products and personalised interactions. Imagine AI-powered tools managing personalised portfolios at scale, previously a privilege reserved for the ultra-wealthy.”

Additionally, AI can enhance the customer experience through targeted marketing and real-time, personalized advice.

Finally, in the private markets space, AI can sift through vast amounts of unstructured data, identifying promising investment opportunities and meticulously assessing potential deals. This translates to faster deal sourcing, more precise due diligence, and potentially higher returns. AI can even help manage and optimise the performance of private market investments, providing insights beyond traditional methods.