The first of a two-part series, An Investment Perspective on Tokenization: Part I, analyses the benefits of tokenisation relative to traditional practices and delivers a primer on the topic exploring how tokenisation works, a technical overview, its value proposition, and current limitations for investors. 

The research draws on interviews with leading digital finance practitioners and includes use cases to evaluate the opportunities for tokenisation through real-world scenarios. Tokenised assets and instruments discussed include art, whisky and wine, gold, equities, mutual funds, private market funds, and repurchase agreements (repos). 

Olivier Fines, CFA, Head of Policy Research and Advocacy at CFA Institute, comments: “Tokenisation can bring many benefits, but it’s not without risks. While benefits may include streamlined clearing and settlement, improved transparency and compliance controls, or greater market access through fractional ownership, there are significant challenges relating to cybersecurity, investor education, and regulation uncertainty.  

“We believe that regulators will need to develop an approach to digital finance that encourages innovation while safeguarding investor interests and market integrity. Different regulatory approaches are emerging: The United States appears headed towards a digital finance regulatory framework that fosters innovation and experimentation. The European Union seeks clear and consistent rules as well as standards to promote interoperability and compatibility across member states. The UK intends to bring regulation of digital assets into existing securities laws.

“With varying regulatory regimes, industry innovators are likely to favour the simplest regulatory environment when setting up shop, potentially resulting in regulatory arbitrage risks. In the current geopolitical context, it is not unreasonable to anticipate that the centre of digital finance innovation will move further in favour of the United States, at least until a clearer international regulatory standard is established.”  

Key findings

·       Operational efficiency:  Tokenisation can lead to cost and time savings, particularly where a system of intermediaries and manual processing is currently required, e.g., middle and back-office operations, clearing and settlement, distribution, and regulation compliance. 

·       Cybersecurity risks: Distributed ledger technology can be vulnerable to attacks, given its inherently decentralised nature. Vulnerabilities include malicious actors, fraud, deception, and the potential for the loss, theft or misuse of private keys, which give access to assets digitally represented on the network. 

·       Regulatory uncertainty: Different jurisdictions have varying regulations, which can create challenges for global implementation and compliance. The borderless nature of digital finance calls for a progressive alignment of regulatory frameworks, or the risk of regulatory arbitrage and market failures will rise.

·       Market infrastructure: Nascent market infrastructure for distributed ledger technology implies a continued degree of fragmentation across public and private blockchains, which is adding potential hurdles for a seamless experience in navigating tokenised assets. Developing a robust and scalable infrastructure is essential for the widespread adoption of tokenisation.

·       Access to private markets: Tokenisation has the potential to widen access to private markets via higher levels of operational efficiencies and lower minimum investment requirements. However, questions about investor protection and suitability persist, especially in a context where information asymmetry may result in an information disadvantage for retail investors. 

Olivier Fines adds:  “Private market access for retail investors remains a contentious proposition. Private market investments usually involve high levels of sophistication regarding their approach to investment strategy, liquidity restrictions, time horizon, fee structure, or performance measurement. Fractionalising private market investments doesn’t change the complexity and suitability of the underlying products and further brings added challenges around cybersecurity. Investor education and suitable regulation will be of the essence.”

With these strategies on the rise, Bloomberg polled over 150 quants, research analysts and data scientists in a survey conducted during a global series of client workshops to understand key trends and challenges in investment research.

Data coverage, timeliness, and quality issues with historical data was cited as the top challenge in the industry, with nearly two-fifths (37 per cent) of respondents selecting this option. This was followed by normalising and wrangling data from multiple data providers (26 per cent), and identifying which datasets to evaluate and research (15 per cent).

In line with these challenges, Bloomberg’s survey found that 72 per cent of respondents could evaluate only three or fewer datasets at a time, despite the need from quants and research teams to continually harness more alpha-generating data in today’s data deluge. The findings also show that the typical time it takes to evaluate a single dataset is one month or longer for more than half of respondents (65 per cent).

Firms are still trying to figure out their optimal strategy for managing research data in the face of the aforementioned hurdles. 50 per cent of respondents reported they currently manage the data centrally with proprietary solutions versus outsourcing to third party providers (8 per cent), with more than six in ten (62 per cent) of respondents preferring their research data to be made available in the cloud. Notably, 35 per cent of respondents also would like their data to be made available via more traditional access methods such as REST API, On premise and SFTP, indicating they prefer flexibility in the choice of data delivery channels.

“From in-depth conversations with our research clients, it’s clear there is a desire for new orthogonal datasets as well as a need to harness ‘AI-ready’ data. The journey from data sourcing to extracting alpha is difficult and the continuous ingestion, cleaning, modeling and testing of data is particularly challenging,” says Angana Jacob, Global Head of Research Data, Bloomberg Enterprise Data. “That’s why Bloomberg is committed to building out our multi-asset Investment Research Data product suite, targeted at quantitative and quantamental research, systematic strategies and AI workflows. Our datasets with modeled Python API access enable customers to reduce their time to alpha through deep granularity, point-in-time history, broad coverage and interoperability with traditional reference and pricing data.”

The report, based on a survey of 220 wealth-industry professionals, including investment teams, portfolio managers and financial advisers, reveals that 60 per cent expect their HNW clients will require some degree of personalization – either now or in the near future. Wealth management is evidently at an inflection point as it adapts to the evolving needs and preferences of individual investors.

In the past, personalisation in wealth management was a primarily niche offering, typically reserved for a select group of high-net-worth (HNW) clients. However, MSCI’s research suggests the democratisation of wealth management has transformed personalisation from a luxury to an industry standard, with technological advancements cutting costs and driving efficiency and scalability to provide bespoke portfolios to a much broader client base than ever before:

73 per cent of respondents named personal preferences – such as supporting the transition to net-zero or better corporate governance – as the prime reason wealth clients are seeking more personalized solutions.

58 per cent of respondents believe it is easier to build a new custom model than modify an existing one.

“The demand for personalised portfolios is growing across all client segments, from high-net-worth individuals to emerging affluent investors,” says Alex Kokolis, Global Head of Wealth at MSCI. “A broader set of clients now expect personalization in all aspects of their lives, including financial services, driven by trends in other industries. They want portfolios tailored to their unique goals, values, and preferences.”

As personal preferences gain importance in the composition of wealth portfolios, advisers’ clients are likely to seek assurance that their portfolios are aligned with their values – requiring wealth managers to go beyond the investment information traditionally reported to clients and finding ways to provide greater transparency into what the client’s capital is funding in both public and private markets:

Across all regions, wealth managers anticipate making larger allocations (82 per cent on average) to private assets over the next three years.

However, as interest grows in private markets, advisers (21 per cent) and portfolio managers (40 per cent) view their current solutions for this asset class as insufficient – compared to 59 per cent of investment teams.

Roughly half of all respondents (45 per cent) reported a limited understanding of private assets as the biggest barrier to making higher allocations.

Other notable barriers were the illiquid nature of investments (52 per cent) and the lack of transparency into the asset class (46 per cent) – with fears notably higher among financial advisers (73 per cent and 59 per cent respectively) as they seek to meet client demand for greater assurance and visibility. 

“In private assets, wealth management firms may be able to differentiate themselves through their education and learning offerings just as much as their investment offerings – both for advisers and end-clients,” Joseph Wickremasinghe, an executive director at MSCI Research, says. “Beyond that, tools or frameworks to standardise or streamline the due diligence process for private asset investments, or perhaps access to a slate of pre-vetted investment opportunities, may be another solution that end-clients find appealing. Being able to choose specific private investments from a selected range that have been deemed appropriate for the size of their allocation, their broad liquidity needs and investment preferences could increase their level of comfort with this asset class.”

Technology is at the heart of enabling transparency and personalization – but MSCI’s survey results suggests respondents feel many of their current solutions need to be upgraded to allow them to satisfactorily deliver on HNW clients’ expectations.

When asked to rank the areas in which their current technology solutions fall short, advisers conducting manual monitoring of client portfolios came in top at 45 per cent, followed by 42 per cent reporting a lack of dynamic insights on taxes, risk and other elements that impact decision making.

Wealth managers are also eager for a platform that can provide a single interface to manage all assets within all portfolios (39 per cent) and, of equal interest, is to design an appealing client portal (39 per cent).

“The demand for investment transparency has evolved significantly beyond simple monthly position reports, as today’s wealth clients seek deeper understanding of their investments’ alignment with personal values and financial goals,” Dhruv Sharma, an executive director at MSCI Research, says. “Digital platforms can help wealth managers meet this need by aggregating and presenting complex data in meaningful ways – from traditional exposure analysis across geographic and thematic dimensions to detailed insights into private asset classes, such as private credit and private equity. Wealth solutions providers add value by simplifying complex information without sacrificing depth, helping advisers address critical client concerns while providing clear visibility into portfolio exposures.”

The difference in the overall remuneration of men and women across the UK’s financial boardrooms during the four-year period decreased due to a marginal fall in remuneration for male board directors at UK firms, and a concurrent uptick in remuneration for their female peers.

Overall pay across UK financial boardrooms fell between 2019 and 2023 on an average basis but remained higher than the European average every year through the period.

North American non-exec directors were found to have received significantly higher overall remuneration than their counterparts in the UK, primarily as a result of receiving equity and stock options in addition to their fixed-fee compensation, which UK and EU boards do not offer for independence and objectivity reasons.

Martina Keane, EY UK & Ireland Financial Services Leader, says: “UK financial services firms have made clear progress towards more equitable pay for male and female board directors, but the pay gap between genders remains stark. While more men than women sit on committees and occupy chair roles, the fact that women on UK boards earn a quarter less than their male peers on average is a concerning reality. Global competition for talent at board-level is only growing, and UK financial services firms must do more to further improve gender equity in their boardrooms and balance remuneration levels.”

Global gender pay comparisons

Between 2019 and 2023, average remuneration for female non-exec board directors across UK financial services firms increased 7 per cent, from USUSD209,987 in 2019 to USD225,275 in 2023. During this time, remuneration for male non-exec directors decreased 1 per cent, falling from USD301,966 to USD299,076.

By comparison, over the same period, the gender pay gap across European financial services boardrooms increased by five percentage points, from 31 per cent to 36 per cent.

Between 2019 and 2023, average remuneration for female non-exec board directors across European financial services firms increased by 12 per cent, from USUSD164,584 in 2019 to USD184,477 in 2023. During this time, remuneration for male non-exec board directors increased at a higher rate of 21 per cent, rising from USD238,706 in 2019 to USD287,994 in 2023.

Over the same period, the gender pay gap across the boardrooms of the largest North American financial services firms narrowed two percentage points, from 7 per cent to 5 per cent.

Remuneration awarded to female non-exec board directors across North American financial services firms increased by 13 per cent, from USD287,465 in 2019 to USD324,250 in 2023. Pay awarded to male non-exec board directors increased at a slower rate of 10 per cent, from USD309,392 in 2019 to USD340,481 in 2023.

In 2023, female directors tracked across UK financial boardrooms earned USD75 for every USD100 earned by male peers, compared with USD70 for every USD100 earned by male directors in 2019, representing a five percentage point decrease in the gender pay gap.

In contrast, in 2023, female directors tracked across European financial boardrooms earned USD64 for every USD100 earned by male peers, compared with USD69 for every USD100 earned by male directors in 2019, representing a five percentage point increase in the gender pay gap.

Comparing this to female non-exec board directors at North American financial services firms, women earned an average USD95 for every USD100 earned by their male peers, compared with USD93 for every USD100 earned by male directors in 2019. This represents a two percentage point decrease in the gender pay gap.

Gender splits within UK, European and North American boardrooms

The gender split (as at the end of 2024) across directors of UK financial services firms stands at 45 per cent female and 55 per cent male, compared to 43 per cent female and 57 per cent male across European financial services firms more broadly.

Data for North American firms shows that at the end of 2023, board-level female representation was nine percentage points lower than the UK, at 36 per cent female and 64 per cent male.

Twenty-one percent of UK financial services firms have less than 40 per cent female representation at board level – the same vs the end of 2023. In comparison, 28 per cent of European financial services firms have less than 40 per cent female representation.

UK non-exec directors are paid more than European counterparts, despite fall in overall pay levels

Total levels of remuneration fell across UK financial boardrooms fell between 2019 to 2023 but remained higher than European boardrooms in every year through the period.

In 2019, UK non-exec board directors were paid 27 per cent more than their counterparts in Europe more broadly. Boardroom remuneration across the sector in the UK averaged USD269,802 per director (on mean), versus USD212,360 across Europe’s financial boardrooms.

However, the pay gap between UK non-exec directors and their peers in Europe narrowed over the period. In 2023, UK non-exec board directors were paid 10 per cent more than their peers across Europe more broadly, earning USD266,368 versus USD242,715 respectively.

This is due to mean remuneration for UK non-exec directors falling by 1 per cent between 2019 and 2023, from USD269,802 in 2019 to USD266,368 in 2023, while over the same period, mean remuneration for non-exec directors across Europe rose by 14 per cent, from USD212,360 to USD242,715.

North American non-exec directors are paid more than UK counterparts

UK board directors were paid less than their North American counterparts in every year from 2019 to 2023, with the pay gap between the UK and North America widening over the period.

In 2019, North American non-exec board directors were paid 12 per cent more than their counterparts in the UK. Boardroom remuneration across the sector in North America averaged USD302,814 per director, versus USD269,802 across UK’s financial boardrooms.

In 2023, non-exec board directors across North American financial services firms were paid 26 per cent more than peers in the UK, earning USD334,707 per director versus USD266,368, respectively.

Female non-exec board directors at North American financial firms, who are paid less than their male peers in the region, still earn 8 per cent more than male non-exec board directors at UK financial services firms, according to the latest available data. In 2023, remuneration for female non-exec board directors at North American firms averaged USD324,250, versus USD299,076 for male non-exec directors at UK firms.

Non-cash remuneration, including equity and options awards, was found to be a major component of overall remuneration awarded to non-exec board directors across North American financial firms. It is a practice that is virtually non-existent across UK boards, as the country’s corporate governance codes discourages non-exec directors from receiving any variable pay in order to maintain independence and objectivity.

In 2019, 54 per cent of remuneration awarded to non-exec board directors across North American financial firms was structured in non-cash terms through equity or stock option awards, rising to 56 per cent by 2023. While UK non-exec board directors receive less remuneration overall, average fixed-fee compensation is much higher than that awarded to their North American counterparts. In 2023, the average fixed-fee compensation for North American non-exec board directors, excluding non-cash elements such as equity or stock option awards, was USD156,811, compared with USD266,368 for UK non-exec board directors.

European market comparisons in non-exec boardroom remuneration

Across European markets, non-exec directors at UK financial services firms were the third most well-remunerated in 2023, behind directors at Swiss and Spanish firms. On a median basis, UK directors were paid USD199,856 in 2023, with Swiss and Spanish directors receiving USD338,621 and USD252,570 respectively, on median.

Absolute levels of female remuneration across European markets follow a similar pattern. Female board directors at Swiss, Spanish and UK financial services firms received the highest overall pay in 2023, at USD254,732, USD246,491, and USD191,000, respectively. Female board directors at Norwegian, French and Swedish firms received the lowest overall pay on median in 2023, at USD60,141, USD86,184 and USD108,883, respectively.

At 11 per cent, the UK has a smaller gender pay gap on median than Switzerland (49 per cent), Denmark (27 per cent), Germany (20 per cent) and Italy (14 per cent), and a wider gender pay gap than Spain (7 per cent). Financial services firms based in Norway have the narrowest board-level gender pay gap, with female board members at Norwegian firms paid 25 per cent more than their male counterparts (USD60,141 for women on median compared to USD48,233 for men).

European sector comparisons

Within the UK financial services industry, non-exec directors in the banking sector were paid the most in 2023, at USD296,785 on median, followed by directors at UK insurers (USD191,000) and UK asset managers (USD135,000).

Within the European banking sector, UK non-exec directors received the second highest remuneration compared with other markets in 2023. On median, non-exec directors at UK banks were paid USD296,785 in 2023, behind only directors at Swiss banks, who were paid USD653,160 on median.

Within the European insurance sector, UK non-exec directors received the third highest remuneration compared with other markets in 2023. On median, non-exec directors at UK insurers were paid USD191,000 in 2023. This was behind non-exec directors at Swiss and Italian insurers, who were paid USD338,395 and USD205,780 respectively, on median.

Within the European wealth and asset management sector, UK non-exec directors received the third highest remuneration compared with other markets in 2023. On median, non-exec directors at UK asset managers were paid USD135,000. This was behind non-exec directors at Swiss and Dutch asset managers, who were paid USD235,138 and USD168,564 respectively, on median.

UK non-exec directors with c-suite or ESG skillsets earn the highest

Levels of remuneration across the UK’s financial boardrooms also vary according to directors’ skillsets and professional backgrounds.

Between 2019 and 2023, non-exec directors across the UK’s financial boardrooms with prior experience in a c-suite role were awarded higher remuneration every year. Most recently, in 2023, non-exec board directors with c-suite experience were paid an average of USD304,562, compared to USD258,190 to those without c-suite experience.

A similar trend is evident among board directors with sustainability expertise; in 2023, UK non-exec board directors with sustainability expertise were paid an average of USD365,884, compared to USD269,523 to those without sustainability expertise.

Omar Ali, EY Global Financial Services Leader, concludes: “The landscape for boardroom remuneration across financial firms in Europe is shifting, and compensation is a key consideration for chairs as they build and maintain their boards in an increasingly global industry. This is particularly the case as chairs of UK firms contend with the more lucrative packages offered in North America, which often include equity and options awards.

“Offering competitive – and importantly, equitable – pay is essential to ensure that boards are equipped with the skills and diversity necessary to navigate evolving market risks and challenges. A structured review of regional pay disparities – and the steps that can be taken to address them – is now integral to maintaining the strength of the UK financial services sector.”

The association writes that demographic shifts, underfunding of defined benefit pension plans, inflation, rising inequalities, and gaps in financial literacy, are creating an increasingly complex pensions environment and more risk of pension inadequacy for retirees.

The research, “Pensions in the Age of Artificial Intelligence,” explores whether technology can offer solutions to address key issues across various parts of the value chain in pension management. It includes case studies and expert interviews from markets including Australia, Japan, the United Kingdom and the United States, and surfaces examples of where the integration of new technology can empower pension trustees as well as beneficiaries to make better informed decisions.

Olivier Fines, CFA, Head of Advocacy for EMEA at CFA Institute, comments: “AI can add more than just operational efficiencies. From onboarding new members to account management, plan governance, investment management, and decumulation strategies, AI and machine learning can play a positive role in addressing key issues facing the pensions industry. However, transparency and robust governance in the use of the technology will be vital to build trust and rapport with pension plan members.”

“As investment firms and plan sponsors increasingly integrate the technology in their processes, collaboration with technology providers and regulators will be important to ensure that workflows consider the specifics of individual pension plans, and respect their operating models, fiduciary duty, and the regulatory framework they operate in. This is why we believe AI should support, not replace, human decision-making and why it will be critical to set clear objectives and benchmarks for evaluating model effectiveness.”

“AI and machine-learning technologies may allow providers to offer more personalised services and dynamic support for plan members. We believe AI should play a major role in balancing personalisation and simplicity, accounting for individual needs and varying levels of financial literacy. This should foster increased member engagement and promote financial wellness. AI can also assist trustees and advisors in navigating the crucial decumulation phase for plan members.”

Key Findings:

·       Enhancing Personalisation, Efficiency, and Accuracy: AI applications are diverse and consideration must be given to how to best use AI to enhance overall retirement security for pension plan members. Enhancements will require targeting specific areas of the pension ecosystem that will contribute the most value for the unique needs of each pension fund.

Member Engagement and Financial Literacy: Implementing AI for member onboarding, communications, reporting, and retirement planning could enhance overall member engagement, boost financial literacy, and support pension plan members throughout their retirement life cycle.

Pension Plan Governance: AI technologies can enhance pension plan governance by facilitating multi-stakeholder interactions, reducing administrative tasks, and aiding pension boards with decision-making. This includes improving optimisation of investment strategies and prompt resolution of member issues.

Investment Management: AI and machine learning models can boost the analytical capacities of portfolio managers, enhance actuarial analyses of pension fund risks, and keep market trend assessments up to date. These technologies may be especially useful for analysing private markets and data related to sustainable investments.

Predictive Analytics and Actuarial Assumptions: Advanced machine-learning techniques may enhance actuarial assumptions and predictive analytics, improving asset/liability management and pension derisking strategies. Defined contribution plans may benefit from personalised strategies across the lifecycle of each individual investment plan, with accumulation and decumulation strategies based on member behaviour predictions.

Growth in equity and option markets is stagnant and exchange groups are focusing on acquisitions to expand adjacent revenue streams, particularly in data products, Morningstar writes. Investments are expected in private market data sets and direct indexing capabilities, aiming to add value through synergies with existing operations.

Exchange groups operate marketplaces facilitating buying and selling of goods, contracts, and assets. They include primary markets (for launching new products), secondary markets (for trading existing assets), and services like clearing, settlement, and data products.

Key takeaways from the report include:

Competitive Advantages: Exchanges benefit from strong economic moats. Notably, their investments in index businesses create intangible asset advantages (e.g., benchmark indexes rarely replaced despite competition). Factors such as liquidity, integrated clearing, asset fungibility, and control of underlying assets determine their ability to maintain market dominance.

European Market Insights:

Stock Market: Developed but underperforming compared to the US in activity, issuers, and valuations.

ETF Market: Gaining traction with retail investors seeking low-cost, passive investing exposure.

Bond Markets: Corporate bonds are underdeveloped compared to the US, while sovereign bonds remain mature.

Equity trading volume in Europe faces structural growth challenges.

Regulatory and Competitive Landscape:

Competition in equity derivatives and index businesses is intensifying but is somewhat mitigated by structural protections.

Regulated markets have ceded share since 2022, but there remains a role for “lit-markets” with increasing competition.

Mergers and Acquisitions: Most M&A activity involves smaller bolt-on acquisitions, as exchange groups expand their offerings.

ESG Trends: ESG risks for exchanges are rated primarily as low or negligible, with product governance, human capital, data privacy, and cybersecurity identified as the most significant risks. Most have a Low rating (83 per cent) while Deutsche Boerse has a Negligible rating.

“Exchange groups remain pivotal in global markets, acting as facilitators for trading and offering essential services like clearing and data products,” says Niklas Kammer, Equity Analyst at Morningstar. “With stagnant growth in equity and option markets, we’re seeing a strategic pivot toward acquisitions—especially in the realm of data products. This focus on innovation and strategic expansion ensures exchange groups continue to maintain a competitive edge while adapting to evolving market demands.”

Asset owner performance

Only 62 per cent of investors say that their institutions’ investment performance met or exceeded long-term return objectives through the turbulence of 2022-2023. In 2024, however, there’s a slightly more optimistic tone, with the figure estimated to be 88 per cent. While managers in private market asset classes (private debt, infrastructure and private equity) still demonstrated the strongest satisfaction ratings in 2024, satisfaction was significantly lower than in 2022. Investors relayed high satisfaction with active fixed income manager performance, with 83 per cent in investment grade bonds, but only 35 per cent of investors were satisfied with real estate managers – a huge decline compared to 2022.

Investment portfolios

Private markets remain central to investment strategies, with 53 per cent of investors planning to increase exposure over the next 18 months. Infrastructure and private debt are leading areas of interest, capturing 36 per cent and 35 per cent of new allocations, respectively. Notably, interest in secondaries is growing, with 37 per cent of investors boosting exposure as they seek liquidity options within illiquid asset classes. However, satisfaction with private equity managers has dropped significantly from 94 per cent in 2022 to 69 per cent in 2024, suggesting increased scrutiny of GPs.

In private markets, nearly half (47 per cent) of investors expect a reduced ‘illiquidity premium’, expecting this to be lower in 2020-2040 than it was in 2000-2020. Meanwhile, 37 per cent are in the process of boosting exposure to secondaries and more than a quarter of those are new entrants to the space, among other strategic changes.

Equity portfolio diversification is a clear priority, as only 34 per cent of investors expect the largest tech stocks to outperform broader indices in the coming year. Additionally, 34 per cent of investors anticipate more diversification in their equity portfolio in the next one-to-two years across one or more of four lenses: style (22 per cent), size (16 per cent), geography (16 per cent) and stock-level (14 per cent).

Fixed income strategies are gaining momentum, particularly investment-grade bonds, with 22 per cent of investors boosting allocations. In real estate, 62 per cent of investors anticipate a moderate (59 per cent) or substantial (3 per cent) recovery in core real estate over the coming 12 months, following severe dislocation. However, investors’ predictions for property market recovery have no relationship with their asset allocations movements over the next 18 months. Meanwhile, emerging market exposures are declining, with 18 per cent cutting emerging market equities and 11 per cent reducing allocations to emerging market fixed income.

Opportunities and trends

Artificial intelligence continues to present compelling thematic opportunities, with 40 per cent of investors viewing it as a strong investment theme. However, caution prevails, with a predicted market rotation away from large tech stocks. This reflects a growing focus on mitigating tech-related concentration risks through diversified equity strategies and broader AI investments.

Adoption of digital assets and cryptocurrencies remains low, with only 9 per cent investing in them. In 2022 the figure was 8 per cent, and 21 per cent expected, at that time, to have exposure within five years.

Finally, although interest in impact investing is growing, adoption remains gradual. Currently, 27 per cent of investors are engaged in impact strategies, with a further 26 per cent planning to enter this space. 24 per cent of investors will increase exposure to impact strategies. Climate transition remains a significant theme, with 40 per cent of respondents identifying it as a strong investment opportunity. Biodiversity-focused assets are poised for growth, with a projected 200 per cent increase as investors explore nature-based solutions.

Risk management

With 75 per cent of investors emphasising the need to build portfolio resilience, managing risk has become a primary objective. Major areas of concern include geopolitical unrest (54 per cent), prolonged downturns in risk assets (23 per cent), and liquidity risks (19 per cent). Investors are taking diverse approaches, with 22 per cent already using equity overlays and another 9 per cent planning to implement them to buffer against potential equity market corrections.

While investors are more positive on ‘risk assets’ (e.g. equities) than they were in 2022, there is a huge contrast between different institution types: only 4 per cent of DB Pension Funds are underweight risk assets, in contrast with 37 per cent of Insurers. Furthermore, investors are expecting ‘higher for longer’ rates compared to the current economist consensus: the average prediction for the Fed Funds rate at end-2025 is 3.4 per cent, distinctly higher than the 3.0-3.25 per cent figure in an October 2024 Reuters economist poll.

Kathryn Saklatvala, Head of Investment Content at bfinance, says: “The report reveals that in an increasingly uncertain world, resilience has taken centre stage for institutional investors. The focus on managing risks like geopolitical unrest, liquidity challenges, and prolonged market downturns underscores the critical need for robust strategies. From equity overlays to private markets and fixed income, we’re seeing investors actively recalibrate portfolios to navigate these challenges, balancing caution with the pursuit of opportunity in areas such as impact investing, infrastructure, and emerging technologies like AI.”

It found seven out of 10 (70 per cent) of family office professionals including those working for multi-family offices estimate philanthropic giving will rise by 15 per cent or more over the next two years. Around a quarter (25 per cent) believe spending on philanthropy will rise by 20 per cent or more over that period.

Ocorian’s international study among more than 300 family office professionals collectively responsible for around USD155 billion assets under management found the key area for philanthropy is likely to be healthcare and medical research. Around two-thirds (67 per cent) said their family office’s philanthropy is linked to that sector while more than half (51 per cent) pointed to diversity, equality and inclusion.

However, the study shows that family offices want some form of investment return from at least some of their philanthropy – around two-thirds (67 per cent) expect to see some form of return on 25 per cent or more of their philanthropic giving with around one in six (16 per cent) expecting to see a return on 50 per cent or more of their donations.

Lynda O’Mahoney, Global Head of Business Development – Private Client at Ocorian says: “The level of philanthropy from family offices and ultra-high-net-worth families is increasing and they’re less interested in their money going into a vacuum—they are enjoying increasing involvement and want to see tangible outcomes from their donations.

“Flexibility is also important given philanthropic plans are often long-term. We’re noticing an increase in Middle East families setting up Jersey-based charitable structures that allow flexibility to allocate their donations to a UK, European, African or Middle Eastern charity, as they choose, without cumbersome controls.

“This trend aligns with the broader desire for increasing control over investments—people want to maintain a say in what happens to their money. Overall, we see families carefully planning and seeking advice on how to structure their donations so that they can see the impact they seek.”

And, Ocorian writes that it would seem that the more families who choose to set up charitable trusts, the more who ultimately want to. Tracey Neuman, Private Client Executive, at Ocorian says: “Charitable trusts are the new superyachts. You simply have to have one if you are an Ultra High Net Worth individual.”

As a result of a marked 12.3 per cent year-on-year increase from 2022, recovering the losses from the previous year, the world’s largest 100 asset owners (the ‘AO100’) now hold a record USD26.3 trillion.

The full Asset Owner 100 study also reveals the evolving split between different types of asset owner. Sovereign Wealth Funds (SWFs) remain a dominant force among other types of asset owners, now managing 38.9 per cent of the assets among the AO100, or nearly two-fifths. In comparison, pension funds, while still forming the largest assets under management by fund type (51.2 per cent), saw the smallest growth rate, with assets held rising by 8.9 per cent from the previous year.

Pension funds have represented a declining proportion of the AO100 in North America and Europe, Middle East and Africa (EMEA) since 2017, falling in favour of Outsourced CIOs and SWFs’ accelerated growth. Across Europe, Middle East and Africa (EMEA) the pattern is more pronounced as SWFs now form 70 per cent of total assets in the region. In comparison, SWFs manage 43 per cent of assets in APAC, and 2 per cent in North America.

The Government Pension Investment Fund of Japan remains the largest single asset owner in the world, with an AUM of USD1.59 trillion alone. The top three also includes the two largest sovereign wealth funds. Norway’s Norges Bank Investment Management in second place with AUM of USD1.55 trillion while China Investment Corporation is now third globally with USD1.24 trillion.

EMEA is the largest region in the AO100 study, accounting for 34.3 per cent of total AUM, closely followed by Asia-Pacific with 33.0 per cent of total AUM. North America represents 32.7 per cent of total AUM.

Jessica Gao, director at the Thinking Ahead Institute, says: “Asset owners globally are navigating a series of waves and occasional storms – from market volatility and geopolitics to technology and structural changes in societies and economies.

“Macro trends matter. Over the last 12 months, the global investment macro environment has been marked by volatility and mixed performance across asset classes. Interest rates reached significant highs in 2023. The first half of 2024 brought some stabilisation in global markets, as base rates remained relatively flat. After a sustained period of elevated rates aimed at controlling inflation, central banks began to implement gradual rate cuts in the latter half of 2024, marking the first reductions in years. However, market volatility remains high with uncertainty due to geopolitical events and several major elections.

“Meanwhile, the rise of political influence amid the increase in geopolitical risks, major elections, and use of monetary policy to tackle inflation has necessitated asset owners to take a more sophisticated approach in managing the intersections between financial return and regulatory compliance. During this period of volatility, leading asset owners strived to balance political influence and achieve positive sustainability impacts, while operating in macroeconomic environments of high uncertainty.

“Technology and more fundamental change – including to the global climate – are accelerating factors too. Traditional risk management relying heavily on historical data and linear models struggles to keep up with today’s complex, interconnected risks. A new approach will be required to understand and manage risks that arise from complex, systemic sources with limited historical precedent.”

The firm writes that with rising geopolitical uncertainty, technological opportunities, and a challenging market environment, asset owners are increasingly focused on resilience, impact, and private market opportunities.

Asset owner performance

Only 62 per cent of investors say that their institutions’ investment performance met or exceeded long-term return objectives through the turbulence of 2022-2023. In 2024, however, there’s a slightly more optimistic tone, bfinance writes, with the figure estimated to be 88 per cent. While managers in private market asset classes (private debt, infrastructure and private equity) still demonstrated the strongest satisfaction ratings in 2024, satisfaction was significantly lower than in 2022. Investors relayed high satisfaction with active fixed income manager performance, with 83 per cent in investment grade bonds, but only 35 per cent of investors were satisfied with real estate managers – a huge decline compared to 2022.

Investment portfolios

Private markets remain central to investment strategies, with 53 per cent of investors planning to increase exposure over the next 18 months. Infrastructure and private debt are leading areas of interest, capturing 36 per cent and 35 per cent of new allocations, respectively. Notably, interest in secondaries is growing, with 37 per cent of investors boosting exposure as they seek liquidity options within illiquid asset classes. However, satisfaction with private equity managers has dropped significantly from 94 per cent in 2022 to 69 per cent in 2024, suggesting increased scrutiny of GPs.

In private markets, nearly half (47 per cent) of investors expect a reduced ‘illiquidity premium’, expecting this to be lower in 2020-2040 than it was in 2000-2020. Meanwhile, 37 per cent are in the process of boosting exposure to secondaries and more than a quarter of those are new entrants to the space, among other strategic changes.

Equity portfolio diversification is a clear priority, as only 34 per cent of investors expect the largest tech stocks to outperform broader indices in the coming year. Additionally, 34 per cent of investors anticipate more diversification in their equity portfolio in the next one-to-two years across one or more of four lenses: style (22 per cent), size (16 per cent), geography (16 per cent) and stock-level (14 per cent).

Fixed income strategies are gaining momentum, particularly investment-grade bonds, with 22 per cent of investors boosting allocations, bfinance writes. In real estate, 62 per cent of investors anticipate a moderate (59 per cent) or substantial (3 per cent) recovery in core real estate over the coming 12 months, following severe dislocation. However, investors’ predictions for property market recovery have no relationship with their asset allocations movements over the next 18 months. Meanwhile, emerging market exposures are declining, with 18 per cent cutting emerging market equities and 11 per cent reducing allocations to emerging market fixed income.

Opportunities and trends

Artificial intelligence continues to present compelling thematic opportunities, with 40 per cent of investors viewing it as a strong investment theme. However, caution prevails, with a predicted market rotation away from large tech stocks, bfinance writes. This reflects a growing focus on mitigating tech-related concentration risks through diversified equity strategies and broader AI investments.

Adoption of digital assets and cryptocurrencies remains low, with only 9 per cent investing in them. In 2022 the figure was 8 per cent, and 21 per cent expected, at that time, to have exposure within five years.

Finally, although interest in impact investing is growing, adoption remains gradual. Currently, 27 per cent of investors are engaged in impact strategies, with a further 26 per cent planning to enter this space. 24 per cent of investors will increase exposure to impact strategies. Climate transition remains a significant theme, with 40 per cent of respondents identifying it as a strong investment opportunity. Biodiversity-focused assets are poised for growth, with a projected 200 per cent increase as investors explore nature-based solutions.

Risk management

With 75 per cent of investors emphasising the need to build portfolio resilience, managing risk has become a primary objective. Major areas of concern include geopolitical unrest (54 per cent), prolonged downturns in risk assets (23 per cent), and liquidity risks (19 per cent). Investors are taking diverse approaches, with 22 per cent already using equity overlays and another 9 per cent planning to implement them to buffer against potential equity market corrections.

While investors are more positive on ‘risk assets’ (e.g. equities) than they were in 2022, there is a huge contrast between different institution types: only 4 per cent of DB Pension Funds are underweight risk assets, in contrast with 37 per cent of Insurers. Furthermore, investors are expecting ‘higher for longer’ rates compared to the current economist consensus: the average prediction for the Fed Funds rate at end-2025 is 3.4 per cent, distinctly higher than the 3.0-3.25 per cent figure in an October 2024 Reuters economist poll.

Kathryn Saklatvala, Head of Investment Content at bfinance, says: “The report reveals that in an increasingly uncertain world, resilience has taken centre stage for institutional investors. The focus on managing risks like geopolitical unrest, liquidity challenges, and prolonged market downturns underscores the critical need for robust strategies. From equity overlays to private markets and fixed income, we’re seeing investors actively recalibrate portfolios to navigate these challenges, balancing caution with the pursuit of opportunity in areas such as impact investing, infrastructure, and emerging technologies like AI.”