Inflation, interest rates, fiscal policy, recession, the war in Ukraine, geopolitical tensions, commodity prices, and counterintuitive markets are all shaping investment decision-making today, according to Cerulli Associates’ latest report, Global Markets 2022: Navigating Global Uncertainty. Cerulli expects key trends for the coming months to include thematic investing, greater digitalization, customization/tailored solutions, and the retailization of alternatives.

“In addition, to the uncertain macro environment, asset managers’ decisions are also being shaped by long-running issues,” says André Schnurrenberger, managing director, Europe at Cerulli Associates. “These issues include downward pressure on fees, tightening profit margins, regulation, and competition from passive management strategies.”

Cerulli expects investors around the world to remain cautious for the foreseeable future, given the political and economic uncertainty. However, the need to generate improved returns and to diversify portfolios will remain guiding principles.

One area where increased investment is likely is private markets. U.S. findings suggest that clients with existing allocations to private markets are looking to expand from traditional private equity into growth and venture capital. Nearly 85% of U.S. based asset managers expect increased demand for private equity mandates and 75% expect more demand for other private investment mandates. In Europe, retail investors’ growing appetite for private assets is prompting some traditional asset managers and hedge funds to expand into this area. In Germany, for example, inflows into real estate funds have been positive for seven consecutive years; this trend is likely to continue, given the inflationary environment and the asset class’s potential to generate stable income.

Cerulli believes asset managers should concentrate on improving capabilities and market access, as well as product innovation and diversification. “Focusing on value-driven products tied to real-world issues such as climate change and digitization may allow managers to charge premium prices,” says Schnurrenberger. “In addition, some may consider expanding into wealth management. This option not only increases the opportunity to generate revenue, but also enables better control over the value chain and reduced distribution costs.”

Cerulli’s research shows that, despite the challenges in markets around the world, plenty of opportunities exist for asset managers—not least in serving investors seeking to counter inflation and volatility. Retail investors are increasingly looking for customized products and services, thematic investing is becoming ever more popular, and the spread of technology is opening new areas of growth.