The European asset management industry is facing rocky times. Although assets under management (AUM) are at record levels, structural trends are putting pressure on long-term viability. At the same time, the industry is facing an uncertain macroeconomic environment and geopolitical tensions, leading to lower levels of net flows and higher market volatility. European asset managers have also lost ground to US players.

Overview of Industry Trends

In 2024, AUM in the European asset management industry reached a record high of €28 trillion, despite lower profitability compared to previous years. The industry saw an increase in net flows, particularly in low-margin products like passives and money market funds. However, high-margin products such as active equity investing experienced net outflows.

Impact of Macroeconomic Uncertainty

The industry experienced a spike in market volatility in 2025, with major losses in global equity markets. European asset managers faced challenges from US exposure, leading to shifts in investment strategies. Three market and flow scenarios were modeled, showing potential revenue pool changes based on market returns.

Key Industry Trends

1. Alternative Investments on the Rise

Alternative investments, such as private equity, saw significant net inflows in Europe in 2024. However, fundraising slowed compared to previous years. Traditional asset managers are facing competition from specialized alternatives players, necessitating strategic partnerships and product line expansions.

2. Growth of Passives

Passively managed AUM in Europe has been steadily increasing, reaching €4.9 trillion by the end of 2024. Despite lower margins, passives continue to attract flows across distribution channels. Asset managers need to balance the revenue contribution of passives with their overall product mix.

3. Crypto as an Opportunity

The digital asset market, including cryptocurrencies, is growing rapidly. European asset managers have been slow to penetrate this market due to regulatory constraints and investor skepticism. However, regulatory changes could pave the way for increased investment in digital assets.

4. Active ETFs and Mutual Funds

Active ETFs have gained traction in Europe, potentially cannibalizing flows from higher-margin mutual funds. Asset managers need to decide whether to focus on existing assets or invest in new flows through active ETFs, balancing short-term revenue margins.

5. Gen AI in Investment Management

Gen AI is transforming investment management, with applications ranging from portfolio construction to investment research processes. European asset managers are increasingly adopting gen AI to enhance performance and efficiency in their operations.

6. Market Share Dynamics

European asset managers are losing market share globally, particularly to US-based players. Strategic positioning, geographical footprint expansion, and innovation in product offerings are crucial for European players to compete on a global scale.

Strategic Imperatives for European Asset Managers

1. Define a Clear Strategy

Asset managers should align their strategies with a well-defined North Star to achieve better financial performance. Three strategic archetypes—At-scale players, Alpha seekers, and Client-centric players—offer different pathways for success in the industry.

2. Rethink Distribution and Growth Opportunities

Asset managers need to expand their geographical footprint to achieve scale and access global markets. Organic growth and M&A strategies can help European players compete with their US counterparts and capture diversified flows.

3. Participate in Alternative Investments

Alternative investments are a significant revenue driver for European asset managers. Building a strong franchise in this asset class requires strategic partnerships, product line expansions, and leveraging shareholder capabilities.

4. Enhance Operational Resilience

Asset managers must reset their operating models for efficiency and resilience. Cost containment, flexible operations, and technology modernization are key areas of focus to protect profit margins and adapt to market volatility.

5. Embrace Technology Innovation

Investing in technology, particularly gen AI, can drive efficiency and performance in investment management. Asset managers should allocate resources to IT transformation, automation, and modernization of legacy systems to stay competitive in the digital age.