2025 Asset Management Predictions

Asset managers are anticipating a 2025 characterized by significant change and are seeking stability as much as possible. Potential tax policy shifts are introducing new challenges and complications for investors, prompting asset managers to consider new strategies. Technology and the regulatory environment continue to evolve rapidly, requiring asset management firms to keep up or risk losing competitive advantage. Economic and labor trends are shaping workforces, causing leaders to embrace emerging technologies and staffing models to fill gaps. As the asset management industry continues to evolve, firms should take a proactive approach to strategizing for the year ahead.

Here’s a glimpse into the top asset management industry trends and predictions for 2025.

1. Alternative financing will continue to be an attractive option for investors

Private credit has become one of the most common sources of financing for deals in recent years. In fact, nearly half (46%) of private equity (PE) fund managers say private credit is their preferred source for financing acquisitions, according to the 2024 BDO Private Equity Portfolio CFO Outlook Survey. Private credit offers more flexibility than traditional bank loans, thanks to less onerous covenant conditions speeding up the dealmaking process. With the challenging landscape, asset managers will likely continue to lean on private credit in 2025.

2. Changing tax policy will bring new challenges

Potential tax policy changes brought on by a new Congress and administration may present challenges for businesses. This could include changes to corporate tax rates, trade and tariff policies, and the future of certain expiring provisions within the Tax Cuts and Jobs Act (TCJA). Shifts in these areas will shape investment strategies and could affect asset management companies’ tax liability or expose them to potential new tax risks.

According to the 2024 BDO Tax Strategist Survey, less than half (43%) of asset management leaders have a tax risk mitigation and response strategy in place and proactively prepare for changes that affect their tax risk profile. Although policy changes take time to implement, asset managers must prepare now. For example, scenario modeling potential tax outcomes and risks can help leaders forecast impacts and develop tailored strategies to address them. Companies that neglect to build a risk mitigation strategy could expose themselves to unnecessary risks in the year ahead.

3. Funds will embrace new tax technologies

Among the slate of risks confronting asset management companies, outdated tax technology is one of the most pressing and potentially harmful. More than one quarter (27%) of asset management tax leaders in the BDO Tax Strategist Survey report outdated technology as their top source of tax risk. As tax requirements deepen and expand, keeping pace will require tax teams to leverage the most up-to-date technology.

Asset management leaders are aware of the urgency, with 60% reporting plans to increase their tax technology investments in the coming year. For many, that means embracing the latest innovations. Forty percent report plans to invest in artificial intelligence (AI) for their tax departments. The granular nature of financial data in tax makes it an ideal proving ground for AI, which can quickly sift through large amounts of data to analyze patterns or generate summaries for tax reporting. Leaders exploring AI should start by piloting a small-scale AI project to test AI applications in real-world tax scenarios. A gradual ramp up will allow for iterative learning and strategy refinement. 

4. More asset management leaders lean on external providers

As asset management leaders increase investments in compliance, tax risk management, and technology, many are also looking to external providers to help address talent and skill gaps. According to the BDO Tax Strategist Survey, 57% of asset management leaders are investing more in outsourcing or co-sourcing for additional tax help. Tax outsourcing and co-sourcing can be particularly beneficial in risk management as internal teams may not have enough time or in-house knowledge to conduct more strategic activities like developing a tax risk management plan. Bringing in external resources can help close that gap. Outsourcing and co-sourcing arrangements also offer improved scalability and cost-effectiveness, allowing funds to ramp up or down depending on their needs.

External advisors can help asset management firms address various tax challenges, including:

• Navigating state and local tax considerations, which can vary in jurisdictions across the U.S. and can benefit from localized knowledge and relationships.
• Forecasting, understanding, and preparing for potential policy changes.
• Integrating and adopting technology, especially around AI, which may require enhanced data security measures or training to overcome employee knowledge gaps.
• Managing complex global tax compliance and transfer pricing requirements.  
• And much more.