The long-term global asset management industry is set for notable growth over the next five years, with assets under management projected to reach $43.6 trillion by 2029, or 7.1% annualized.

ISS Market Intelligence published the findings in the latest “State of the Market: Future of Retail Products Report,” highlighting a rising demand for active strategies and a shift toward alternative investments.

"Over the next five years, asset managers will confront familiar challenges like aging demographics and index funds' ongoing market share gains," said Christopher Davis, U.S. Head of Research at ISS Market Intelligence. "But they will also encounter new competitors as traditional alternatives managers increasingly intrude upon their turf."

The firm sees lower yields, diminishing the appeal for cash and accelerating organic growth as investors seek higher returns. They expect long-term funds to achieve $2.8 trillion in net flows by 2029 and taxable bond funds to attract $2.1 trillion.

A notable trend is the increasing investor preference for younger fund offerings. Since 2021, 40% of AUM growth has been concentrated in funds less than three years old. Active ETFs, in particular, have emerged as a favored vehicle for investors and asset managers.

The report forecasts a rise in active ETF market share from 2.8% to nearly 4.9% by 2029, signaling a shift in advisor preferences and cementing these products as key growth engines.

Still, the "dinosaurs" are far from extinct. The Vanguard S&P 500 ETF (NYSE:VOO) recently broke a record, passing $100 billion in annual inflows. With an expense ratio of just 0.03%, this fund is a cheaper alternative to the more popular SPDR S&P 500 ETF (NYSE:SPY), which has an expense ratio of 0.09%.

The ISS report shows that alternatives, including liquid alternatives and cryptocurrencies, also see surging demand. Interval funds, tender offer funds, and business development companies focused on private credit represent promising opportunities for asset managers aiming to diversify their revenue streams.

So far, cryptocurrencies have shown promise, as Bitcoin ETFs, like Fidelity Wise Origin Bitcoin Fund (BATS:FBTC), drew record inflows following Donald Trump's 2024 election victory.

In the same period, the U.S. ETF market demonstrated remarkable resilience, posting $155.5 billion in inflows in November alone. Year-to-date inflows have reached $962 billion, placing the market on track to surpass $1 trillion in 2024.

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Image created using artificial intelligence via Midjourney.