Asset managers are poised to navigate significant transformation this coming year driven by continued tech innovation, an emerging synchronization of global macroeconomic shifts, and the evolving expectations of capital allocators. As we transition into the new year, here are a few areas that have our attention.

1. The Rise of Artificial Intelligence and Machine Learning in Investment Strategies

Artificial intelligence and machine learning are no longer experimental tools but core components of advanced investment strategies. In 2025, look to see it implemented, monitored, and its impact measured.

We expect to see it leveraged in:

• Portfolio Optimization: Enhanced algorithms will offer superior predictive capabilities, optimizing risk-adjusted returns in what we expect to be increasingly volatile and global markets.
  
  

• Alpha Generation: AI will enable deeper insights from alternative datasets, such as ESG factors, satellite imagery and natural resource consumption, but also introduce newer “soft” datasets such as sentiment analysis from global news.
  
  

• Operational Efficiency: Automation of middle- and back-office processes will continue to drive cost reduction and operational scalability.

We continue to be on the lookout for investment opportunities that embrace the implementation of AI innovation and best practices.

2. Sustainable Investing Moves Beyond ESG

While ESG labeling remains controversial, 2025 will likely see a shift toward more tangible impact-oriented strategies. We expect more to-market strategies in:

• Climate Transition Investing: While the incoming administration will likely cool (no pun intended) momentum towards climate investing, large institutions have heavy stakes in the space and will likely continue to send allocations to companies and projects leading the transition to net-zero emissions.
  
  

• Biodiversity and Natural Capital: A kissing cousin to climate investing, investors will explore opportunities in reforestation, water conservation, and sustainable agriculture.
  
  

• Regulatory Standardization: Global alignment on ESG reporting frameworks will improve transparency and reduce greenwashing concerns but will create friction in the distribution of these investment strategies.

We anticipate the rise of thematic investment vehicles addressing specific global challenges, delivering both financial returns and measurable social/environmental impact. Green will continue to be a theme in 2025.

3. Private Markets: A Core Allocation

Led by a now decades-long best practice in endowment investing, institutional investors are continuing their shift into private markets for yield and diversification. By 2025:

• Private Credit: This asset class will expand as banks remain conservative in lending, creating opportunities for private credit managers. The opportunities in this space are compelling and Modern Capital has announced the launch of our own private credit fund in Q1 2025.

  
  

• Venture Capital and Growth Equity: As many of these bets have paid off in a big fashion, institutions will continue to increase exposure to early round and add on funding of technology-driven businesses solving structural challenges, particularly in AI, biotech, and clean energy.
  
  

• Real Assets: Infrastructure investments, particularly in renewable energy and smart cities, will see significant inflows.

Access to private markets will become more democratized through tokenization and digital platforms, providing liquidity to previously illiquid assets.

4. The Institutionalization of Cryptocurrency and Digital Assets

Digital assets are entering a new phase of maturity. We expect institutional adoption to grow due to:

• Regulatory Clarity: As governments and regulatory bodies establish clearer frameworks, digital assets will be increasingly integrated into portfolios.
  
  

• Tokenization of Traditional Assets: Real estate, bonds, and private equity are among the asset classes being tokenized to enhance liquidity and fractional ownership. As are mutual funds, our own Modern Capital Tactical Income Fund (MCTDX & MCTOD) was tokenized in Q4 2024.
  
  

• Digital Asset Infrastructure: Secure custody solutions, trading platforms, and market analytics tools will create a more robust ecosystem for institutional investors to deploy significant assets to digitized assets.
  
  

• Familiarization: Investors now own over $2 trillion of crypto currencies. Digital assets and the supporting infrastructures around them are becoming much less foreign than they were just a few years ago.

As skeptics turn into adopters, digital assets will shift from speculative investments to strategic portfolio allocations. The tokenization of otherwise illiquid assets will present a significant opportunity in economizing private debt and equity allocations in portfolios.

5. Focus on Resilience in an Evolving Global Economy

The global economy is entering a period of structural change, characterized by persistent inflation, deglobalization, and demographic shifts. To navigate this environment, asset managers will prioritize:

• Diversification Across Geographies: Opportunities in emerging markets, particularly India, Southeast Asia, and parts of Africa, will gain attention.
  
  

• Inflation-Protected Strategies: Real assets, commodities, and inflation-linked bonds will play a greater role in institutional portfolios.
  
  

• Dynamic Risk Management: Risk parity, hedging, and tactical asset allocation strategies will gain prominence as volatility persists.
  
  

• Onshoring: Expect to see endowments and family offices in politically unstable parts of the world shift assets to traditional players such as the US and Canada.

  
  

6. Regulatory Compliance: A Growing Priority

In 2025, regulatory compliance will become an increasingly significant focus for institutional asset managers as regulations continue to evolve globally. Key trends include:

• Increased Scrutiny on ESG Claims: Regulatory bodies will impose stricter requirements for verifying and reporting ESG-related claims to combat greenwashing.
  
  

• Digital Asset Regulations: Clearer guidelines around digital asset custody, taxation, and trading will enhance trust and facilitate broader adoption.
  
  

• Data Privacy and Cybersecurity: Asset managers and their distribution channels will face heightened regulations related to data protection, requiring robust cybersecurity frameworks to safeguard sensitive client information.
  
  

• Global Regulatory Convergence: As investment markets become increasingly interconnected, we anticipate greater alignment of regulatory frameworks across jurisdictions, reducing compliance complexity for global investors.

Asset managers who proactively adapt to this evolving regulatory environment will gain a competitive edge, reducing risk and foster investor trust.

Final Thoughts

In 2025, success in asset management will depend on adaptability, innovation, and an unwavering focus on delivering positive portfolio outcomes. The interplay of technology, sustainability, and macroeconomic realities will require portfolio managers to be agile and forward-thinking. By embracing these trends, we can position our portfolios to thrive in a complex and evolving investment landscape.