Trend 1: ETFs and private markets are powering the next wave of investment innovation

Our view: It is well documented that investors are looking beyond traditional equity and fixed income portfolios to seek higher returns, diversification, and protection against inflation. We continue to see strong demand for liquid private market fund products and continued rapid growth in the ETF market, with active ETFs on the rise.

According to BBH’s Head of Distribution Intelligence, Killian Lonergan: “Most of the conversations we have with clients looking to launch products are about active ETFs or private markets-based investments. Our recent Private Markets Investor Survey found that 91% of the 500 institutional investors and wealth advisors we surveyed intended to increase their holdings of private markets alternatives within the next two years. In Europe, semi-liquid products and European Long-Term Investment Funds (ELTIFs) are also in the spotlight.”

Asset manager takeaways: With demand driving the proliferation of new funds, now is the time for investment managers to make informed decisions about both their product suite and desired distribution strategy, inclusive of investor type and sales channels. Having a full understanding of cross-border distribution needs and specific local regulations/requirements can be important factors in avoiding potential market obstacles while achieving growth.

Trend 2: Investor education is becoming critical as retailization of private markets accelerates

Our view: In Europe, amid a backdrop of supportive political and regulatory change, we believe the so-called retailization of the market is well underway. More comprehensive financial education may be required to encourage investment and protect retail investors as private market funds enter the mainstream.

According to BBH’s Head of Market Intelligence Adrian Whelan: “In the European Union, governments are looking at ways to get more people involved in capital markets and investment funds, through initiatives such as Saving and Investment Union (SIU), to bridge pension funding gaps, aid citizens’ retirement needs, and prime wider economic growth. The concept of democratization or increasing retail access to less mainstream products such as private market funds is taking root and we are seeing rapidly rising interest in this space.”

Fidelity International Chief of Staff Victoria Kelly adds: “Investor education, particularly through the wealth advisory channels, remains a broad industry challenge. Investor appetite is clearly there, but products with complicated liquidity provisions that combine both liquid and illiquid investments need to be thoughtfully explained to new investors by advisors and distributors.

“When you begin to market multiple asset classes to retail investors what are the right protections? Where should the speed bumps lie? The move from an industry of savers to investors is a really interesting transition. But the investment industry needs to consider how it can make that journey simple for people while managing the risk they are exposed to,” she says.

Asset manager takeaways: Beyond end investors, advisors within the sales and distribution chain may need to receive more education about how products operate, their liquidity terms and options, and other aspects of their distribution and administration. Fund distribution is a team sport.

Trend 3: FX takes center stage as asset managers grapple with rising currency risks in a turbulent world

Our view: A darkening geopolitical picture coupled with market uncertainty over trade and tariffs point to a trend of reduced global reliance on the US dollar, which has roiled currency markets in recent months.

This has concrete impacts for the cross-border investment fund sector.

According to Kelly: “Recent moves in currency values and foreign exchange (FX) markets have had a big impact on the investment fund sector.

“Increasing geopolitical uncertainty means the role of FX within the investment business is becoming very important. Where once it was not so much of a focus there is now a real awareness of FX risk. How investment managers manage their products and their different FX needs will be important going forward. Much more attention is falling on currency share classes and client need for multi-currency share classes.”

Asset manager takeaways: Offering multi-currency share classes can increase asset managers’ access to a broader distribution network. To optimize investor demand, many asset managers are incorporating currency hedged investment options to mitigate FX volatility risk for underlying investors. In the semi-liquid product distribution space, many managers are structuring FX hedging programs that optimize liquidity by aligning all potential cashflows within their products.