April 16, 2024 — Welcome to the new U.S. institutional investment industry, in which private assets and artificial intelligence are transforming what has historically been a relatively placid and slow-to-change business. 

Institutional investors are devoting a growing share of their assets to private equity, private credit and other alternative asset classes. Meanwhile, asset managers are investing heavily in AI applications they believe will remake all aspects of the institutional business. These trends are combining to change the institutional asset management industry at a nearly unprecedented pace. 

Alternative investments now make up roughly a third of the assets in U.S. institutional portfolios and based on institutions’ plans for future asset manager hiring, that share is set to grow even further over the next three years. 

Just a decade ago, U.S. institutions allocated about a quarter of their assets to alternative assets classes and now according to new data from Coalition Greenwich, after years of steady growth, alternative allocations hit 32% in 2023. 

“Among U.S. institutions, allocations to private equity now top those of public international equities, and private debt allocations are rising fast,” says Todd Glickson, Head of Investment Management–North America at Coalition Greenwich.

In January 2024, Coalition Greenwich reported that more than 40% of North American institutional investors plan to increase allocations to private debt in the next three years, and roughly a third plan to grow their private equity holdings. Today, the firm released new data showing that U.S. institutions are making plans to hire asset managers to implement those strategies. 

Approximately 32% of U.S. institutions plan to expand their list of private equity managers in the next three years, and roughly a quarter of institutions plan to hire new managers in each of private debt and venture capital. 

“Institutions’ increased emphasis on alternatives is creating growth opportunities for managers in private assets,” says Todd Glickson. “Those opportunities are open to both private market specialists and to multi-asset managers with a proven track record and demonstrated expertise in private credit, private equity and other in-demand strategies.”

In addition to the heightened interest in private markets, artificial intelligence is another force impacting nearly every aspect of the asset management industry. In Q3 2023 Coalition Greenwich conducted a special study and asked asset managers to explain how they expect AI to affect their businesses. The results were eye-opening. Seventy percent of the asset managers expect AI to significantly change investment research and idea generation and roughly the same share expect AI to significantly alter the way they market their business to institutional investors. 

“What’s really striking is the breadth of the impact,” says Todd Glickson. “Half or more of the asset managers expect AI to dramatically alter functions as diverse as portfolio risk management, compliance and client service.”