A regular briefing for the alternative asset management industry.
Last week, we published Insights '25 – our annual preview of the year ahead for the alternative asset management sector.
Will Normand, Acting Head of Asset Management at Travers Smith, introduced this year's edition, summarising the key developments to watch out for in 2025 and beyond:
Politics matters, of course, and 2024 was certainly eventful. We enter 2025 with new governments at the helm in many countries – and ongoing political instability in a number of others.
No-one can predict exactly what Trump’s second term will mean for the US and the wider world, but alternative asset managers might look forward to the promised tax cuts and deregulation. In particular, the new SEC leadership might ease some rules that hinder access to retail investors – although managers with a strong focus on ESG are likely to face increasing pressures.
Political instability in Germany, France and elsewhere in Europe will not help the continent’s investment proposition – which is particularly unfortunate given the need for investment in productive long-term assets and the net zero transition.
The UK will see some early setbacks for the alternative asset management industry – most notably increases in the effective rate of tax on carried interest in 2025 and 2026. Eventually, the UK rate will rise to just over 34%, top of the table for mainstream European jurisdictions. The UK is also replacing the current “non-dom” tax regime with less generous residence-based rules, which will impact many in the sector.
On the other hand, a renewed focus on competitiveness by the new European Commission is expected to deliver some welcome simplification of the regulatory rulebooks, and the UK’s new Labour government is supportive of private capital as a partner in its “national mission” for economic growth. Several planned changes to the organisation and regulation of UK pension schemes are expected to deliver increased investment in private markets, and several infrastructure investment initiatives will create opportunities.
The “retailisation” of private markets looks set to continue apace. Asset managers, with some help from regulators, have continued to develop products for wealthy individuals.
Developments in technology, and AI in particular, will also continue to shape the private capital sector – and may be particularly relevant to retailisation. AI will drive operational efficiencies, such as streamlining sales and distribution processes to better cater for an expanded investor base, but we also expect to see further groundwork in the development of tokenised investment funds. Regulation is not far behind though, and the EU AI Act will have some consequences for many firms early in 2025, especially those using AI in recruitment and employment procedures.
ESG issues will remain at the fore. 2025 will see the first reports under the EU’s Corporate Sustainability Reporting Directive (CSRD) and first entity level disclosures under the UK’s sustainability disclosure regime by larger asset managers carrying on sustainability business – and we should find out more about the expected extension of the UK regime to portfolio managers. Investor reporting is also evolving: ILPA is about to launch its new reporting templates.
