With a new administration entering office this year, the asset management industry is awaiting a slew of potential policy changes in 2025. If enacted, these policies will likely impact the macroeconomic environment — most notably in areas like federal regulation and tax policy — and could carry significant implications for asset management.
Overall, the industry outlook is a positive one, with asset managers anticipating reduced friction from regulatory bodies that could accelerate the emerging uptick in mergers and acquisitions (M&A) activity. But even with a relatively positive outlook, the precise timing and nature of the coming changes remain uncertain, leaving asset managers and firms in a holding pattern.
Here’s a look at upcoming changes that could impact the asset management industry, as well as tips and best practices for asset managers to prepare in the interim.
Deregulation Across Agencies
Key regulatory agencies, such as the Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), and Internal Revenue Service (IRS), will undergo leadership and funding changes this year. The current SEC chair, Gary Gensler, for example, will be stepping down on January 20, 2025. Paul Atkins, the new SEC chair nominee, is expected to take his place.
Leadership changes could beget a new regulatory posture for these bodies. The FTC could roll back its aggressive merger challenges, creating an environment more conducive to dealmaking — though certain elements of the new administration remain broadly supportive of the prior administration’s policies. Certain SEC regulations and international agreements, particularly those related to climate disclosures and digital asset regulations, could also be curtailed. Businesses and investors may then shift away from strategies that focus on environmental, social, and governance (ESG) bona fides, reducing compliance costs for some organizations as a result. Deregulation will likely add more momentum to the growing push among asset managers to offer alternative investment products — once exclusively the purview of more legally sophisticated investors, as qualified by the SEC — to retail investors.
Changes to agency funding could potentially compound the effects of their leadership changes, but the long-term impacts of funding reductions are less clear. Many regulatory agencies will be leveraging advanced technologies to support their enforcement efforts, which could offset a reduction in resources or personnel. The IRS, for example, is leaning further into automation and may eventually be able to provide a comparable level of oversight even if some of the funding announced in 2024 is pared back.
While reduced friction and smoother dealmaking are promising developments, firms should be careful not to act too quickly and should always keep long-term compliance in mind. There will be another administration in 2028, which could restore cut funding, rules, and regulations. Control of Congress may shift even sooner. Firms should remain cautious about falling out of compliance if regulations tighten once again.
Markets Opening Up
Interest rates declined sharply in the latter half of 2024, but that pace of decline may not continue in 2025, depending on the posture of the Federal Reserve (Fed) and its potential leadership changes. Wary of markets opening too quickly, the Fed may opt to slow the rate of interest rate reductions.
Many private equity (PE) and venture capital investors, however, are sitting on copious amounts of dry powder — and in some cases have been holding onto it for years. They will be eager to put those funds to use. Even without a rapid decline in interest rates, 2025 is set to see an uptick in M&A activity, as well as increased PE activity — particularly exits. Lowered cost of capital could make conditions easier for emerging businesses, enabling them to bootstrap for longer periods of time. Energy markets may also receive a notable bump due to the reduced focus on climate disclosures and ESG requirements, as well as an increased emphasis on domestic energy production from the new administration. Should this occur, commodity managers will see new opportunities open.
Broadly, asset managers will likely benefit from increased activity, with 75% of hedge funds correlated directly to market trends. When the market thrives, they thrive too. But will 2025 bring a market surge, as some expect, or will the opening be slower? The asset management industry will not know until the transition is complete and the new administration begins to pursue its agenda. In the meantime, performing deal due diligence and other preparations now can help firms and managers position themselves to act at the appropriate time — especially if the market does not heat up right away.
Corporate Tax Reductions
The incoming administration made clear during the 2024 campaign that it will likely press for the extension or expansion of certain expiring provisions in the Tax Cuts and Jobs Act (TCJA). For example, Congress may review the scheduled expiration of bonus depreciation. President-elect Trump also expressed interest in lowering the corporate tax rate from 21 to 20 percent — or 15 percent for companies engaged in domestic manufacturing. While the Republican-controlled House and Senate will likely concur with the new administration’s policy preferences, Congress’s ability to make any such changes or extensions permanent will depend on whether and to what extent the Senate maintains the legislative filibuster.
Lower corporate tax rates — as well as policy changes around tariffs and trade — may motivate companies to onshore back to the U.S., providing another potential fuel source for the expected increase in market activity. Given these impending changes, many companies may choose to hold off on major strategic business decisions in the short term, pushing certain transactions down the line as they wait and see if the new administration’s tax plans come to fruition.
In the meantime, companies and firms should scenario model potential tax changes and their impacts. Creating models ahead of time, rather than baking assumptions into a set tax strategy, can help asset managers prepare for and react to any eventuality.
How Asset Managers Can Prepare
Overall, the outlook for the asset management industry in 2025 is positive. Asset managers expect less regulatory friction, lower taxes, and a more active dealmaking environment. That said, the timeline remains unclear. Will changes happen rapidly? Will certain changes — particularly those that must pass through a Congress with an historically narrow majority — take longer to implement? Will others fail to manifest altogether?
Firms should adopt a cautious attitude for now, planning for what they can and modeling various scenarios so they are ready to take advantage of tax code changes or market deregulation. Scoping out deals and conducting any necessary assessments or due diligence in advance can help increase readiness when the time comes and help lay the groundwork for a successful 2025.
Ready to start planning for business under a new presidential administration? BDO can help. Contact us to learn more.