2023 investment management outlook

The global investment management industry looks to drive success in a virtuous cycle

Strong connections between leadership, culture, and operating results are helping investment management firms drive success in a virtuous cycle (figure 1). Two important findings from the 2023 investment management outlook survey are the consistency of opinion between organizational functions on the health of firm culture and the agreement on priorities for allocation of resources over the coming 12–18 months. These findings represent a meaningful improvement in coordination across departments from results reported in last year’s outlook.

Of course, revenue and profit growth are not distributed equally among investment management firms. Some firms responded better than others to the unprecedented disruptions of the last two years. Investment managers continue to face internal and external challenges, including rethinking traditional workplace models without sacrificing workplace culture and meeting increasing societal demands for greater equity and inclusion. Market challenges, changing client expectations, and evolving technologies will continue to be huge factors heading into 2023. Investment management firms that keep their virtuous cycles turning could be more likely to earn continued success.

Here are some of the key findings from Deloitte’s 2023 investment management outlook:

2023 investment management outlook

Open-ended funds continued to attract the lion’s share of investments. Only about 20% outperformed the broader US equity composite on an absolute return basis for the one-year period ended 2021. In terms of global alternative investments, private capital (private equity, venture capital, real estate, real assets, private debt, fund of funds) continued to outperform hedge funds, returning 39.7% in 2021 compared to 10.2% for hedge funds1. The industry consolidation showed signs of slowing down with mergers and acquisitions (M&A) activity declining in the second quarter of 2022 compared to Q2 2021. As potential deals move to the back burner in 2023, some investment management firms may focus more on integrating previously closed acquisitions to maximize synergies and transform operations.

1. PitchBook, Global fund performance report, May 4, 2022; BarclayHedge, “Barclay Hedge Fund Index,” accessed September 12, 2022. View in Article

The pandemic, the great resignation, and the shift to remote workplace models has changed the way work gets done. Firms need to focus on crafting their workplace policy in ways that can strengthen the organizational culture. Survey results indicate that the relationship between workplace policy and strengthening culture is linear: 32% of respondents at firms that were likely to adopt a hybrid workplace strategy report that their firm’s culture has become much stronger. Among firms likely to adopt a policy in which most employees return full-time to the office, just 13% of respondents reported a strengthening culture—a shift from last year’s survey results. Firms are updating their workplace policies in terms of ESG compliance, trainings, and learning opportunities to influence employee satisfaction. However, these updates alone are not always enough. Progress toward establishing and communicating a corporate purpose is correlated to improved efficiency, revenue opportunity, and reduced employee turnover.

Firms continue to invest in digital transformation with new technologies that improve the client experience, gain operational efficiencies, and potentially generate alpha. The connection between progress on the digital transformation journey and improving culture is remarkably strong. Of the few respondents who reported that their firm were very far along in their digital transformation journey, 80% also reported that their firm’s culture got much stronger since the beginning of 2022. Client-centricity is also gaining importance with direct indexing, ESG-aligned portfolios, and digital assets serving as notable developments. Firms focusing on client-centricity should also rethink fund distribution through integration and collaboration with digital platforms. Furthermore, governance and reporting mechanisms at many investment management firms have still not caught up with the pace of digital transformation. Leaders can help drive changes effectively with communication to foster collaboration across departments and achieve transformative results.

As investment management firms plan and execute their strategies for 2023, the insights from our survey support the notion that leaders who engrain a sense of purpose throughout the organization take a meaningful step to success on many levels. Culture, something that leaders should work to enhance, correlates to components all around the virtuous cycle. Investment management firms with differentiated success are likely to have a strong culture and purposeful firm vision.

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