Still, if the federal funds rate were to remain at the current level of 5.5% — or climb even higher in 2024 — some 64% of survey respondents thought their firm's ability to deploy capital or grow would not necessarily be impacted.
"Asset managers aren't so much concerned about the level of interest rates as they are about their varying trajectory and timing (of rate cuts)," KPMG said in the survey.
The availability of capital ranked as a primary concern for asset managers in terms of growth. Some 40% of respondents cited this availability as the top risk factor in growing their funds this year. "Many investors remain in a wait-and-see mode while market uncertainty around pricing unfolds." KPMG said in the survey.
The lack of liquidity in the credit markets due to banks and traditional lenders tightening lending standards has created opportunities for private debt and other alternative credit vehicles. As a result, private debt and private equity were picked by 39% and 38% of respondents, respectively, as the asset class that is expected to deliver the highest returns over the next three years.
About 34% of respondents were also concerned about their firms' ability to recruit and retain top talent as a top operational risk, while 33% were worried about geopolitical risks and political uncertainties. The fears over retaining employees were particularly pronounced at smaller firms — those with assets under management of $250 million or less.
Another 21% of all respondents cited regulatory and tax matters as a primary risk to growth, suggesting that asset managers "foresee a divided government in Washington post-election, reducing the likelihood of any significant new regulations coming to fruition," KPMG noted in the survey.
With respect to generative artificial intelligence, 30% of respondents predicted that by the end of 2024, generative AI will be able to execute 5% to 20% percent of daily tasks that their teams currently perform. But only 20% feel they are sufficiently knowledgeable in the use of GenAI, "showing a skill gap that asset managers should address while handling their talent risk concerns," KPMG said in the survey.
Finally, about one-third of respondents said that progress in terms of diversity and inclusion hasn't moved quickly enough within the asset management industry. Moreover, almost one-half of all respondents agreed that achieving gender representation goals in their organization is important. Nonetheless, fewer than one-third of respondents said their firms are prioritizing such initiatives in 2024.
KPMG conducted the survey in November and December, just prior to the Dec. 13 Federal Open Market Committee meeting when the Fed left rates unchanged. Survey respondents comprised more than 170 asset management professionals in the U.S., with a majority from firms that have at least $2.5 billion in AUM.