While worries about inflation have subsided, asset managers in the U.S. are concerned about uncertainties surrounding interest rates, capital funding and how generative artificial intelligence will play out across the industry over the long term, according to the latest “Asset Management Industry Pulse” survey from KPMG.

The survey found that almost two-thirds (63%) of asset managers expect the Federal Reserve will commence cutting interest rates in the second half of 2024, while the remaining 37% think the central bank will hold off until 2025 or later to ease rates.

“Despite the FOMC’s decision to hold rates steady in July, the prevailing expectation is for rate cuts to occur later this year,” said Yelena Maleyev, KPMG senior economist, in a release issued in tandem with the survey.

“The Fed remains focused on achieving a soft landing — balancing price stability with full employment. Our survey reflects this sentiment, with 63% of asset managers anticipating rate cuts in the latter half of 2024.”

Maleyev added that given recent signs of a slowdown in the labor market, the likelihood of a rate cut in September seems increasingly probable. For the asset management industry, these anticipated changes in monetary policy could present both challenges and opportunities, as investors adjust strategies to align with shifting economic conditions.”

In addition, nearly one-half (48%) of asset managers in the survey pointed to the availability of capital as their number one concern, followed by interest rate uncertainties, ranking second at 37%.

Private debt was picked by 43% of respondents as the asset class that will deliver the highest return on investment over the next three years, followed by private equity (35%).

Cautious with AI

Despite the ongoing clamor surrounding generative AI, asset managers surveyed are proceeding cautiously in this area.

Some 40% said their firms are in the “conceptual phase” with respect to AI, while 25% are “developing capabilities,” and nearly one-third haven’t even begun an AI strategy. Less than 5% of all firms in the survey currently have a clear AI strategy.

The principal barriers to AI adoption, as cited by the respondents, are data integrity risks (60%) and lack of awareness and training (53%). These critical areas need addressing for more effective AI implementation, KPMG noted in the survey.

“The asset management landscape is marked by compound volatility, with immediate challenges like interest rate uncertainty and capital deployment creating significant pressure,” said KPMG’s U.S. sector leader for asset management, Greg Williams, in the release.

“To thrive in this environment, asset managers must adopt a forward-thinking approach to their strategy, including their plans for GenAI, that is comprehensive of overall risks and operational needs so they can effectively manage both immediate concerns and future growth opportunities.”

KPMG conducted the survey of more than 120 asset management professionals in July 2024 (prior to the July 30-31 FOMC meetings, where the central bank held rates steady). A majority of these respondents worked at firms with at least $2.5 billion in assets under management.

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