Institutional investors are increasingly redefining what they expect from external fund managers, with new research suggesting traditional benchmark-focused investment approaches are no longer sufficient to meet the challenges facing long-term capital owners.
A report from the Thinking Ahead Institute and CAIA Association found pension funds, sovereign wealth funds and other large asset owners are adopting more integrated investment frameworks that place greater emphasis on long-term resilience, systemic risks and real-world outcomes, creating pressure on asset managers to evolve their business models and investment processes.
The report, An Expanding Mandate: A Systems-Level Framework for Asset Management, drew on survey responses from 176 asset managers across 16 countries representing approximately US$39 trillion in assets under management, alongside discussions with senior investment leaders across major financial centres.
Researchers argued a growing divide is emerging between asset owners that increasingly view their portfolios through a systems lens and managers that continue to operate under investment frameworks designed for a more stable and predictable era.
The paper said many of the world’s largest institutional investors have already begun shifting away from traditional strategic asset allocation models towards broader approaches such as goals-based investing and total portfolio management.
Rather than measuring success primarily through benchmark-relative returns, these investors are increasingly focused on whether portfolios can deliver outcomes for beneficiaries across decades while navigating structural changes in the global economy.
According to the report, this transition reflects growing recognition that long-term returns are influenced not only by individual securities or asset classes but also by the health and resilience of the broader economic, social and environmental systems in which those assets operate.
Researchers described the trend as “systems-level investing”, an approach that recognises investors are participants within the system rather than external observers and therefore need to consider how capital allocation decisions influence market functioning, social stability and long-term economic sustainability.
The findings suggest that while many managers acknowledge the importance of major structural themes, fewer have successfully integrated them into investment decision-making, organisational design and client engagement.
Head of the Thinking Ahead Institute Marisa Hall said the industry was approaching a critical inflection point.
“Asset management is running out of road with old playbooks. In a world shaped by interconnected risks, structural change and rising client demands, benchmark-relative thinking alone is no longer enough.
“Firms need to adapt to a more integrated, systems-level view to stay relevant. Too many asset managers are still clinging to models built for a simpler era.
“The uncomfortable truth is that relevance is already being reallocated by asset owners, quietly but decisively, to those that have retooled their organisations for this new reality.”
The report identified several forces driving the shift in institutional investor thinking, including geopolitical fragmentation, demographic change, climate-related risks, artificial intelligence and the growing convergence of public and private markets.
Researchers argued these developments are increasingly interacting simultaneously, making it more difficult for investment organisations to rely on traditional siloed approaches to portfolio construction and risk management.
One of the report’s central conclusions is that the industry’s prevailing investment architecture was largely built for a period characterised by expanding globalisation, declining interest rates and relatively stable geopolitical conditions.
As those assumptions come under pressure, institutional investors are increasingly looking for managers capable of assessing how different risks interact across markets and economies.
The research argued that geopolitical developments have become particularly significant, moving from a peripheral consideration to a major determinant of capital flows and investment outcomes.
At the same time, demographic shifts across major developed economies are expected to influence labour markets, pension systems, sovereign debt dynamics and consumer spending patterns for decades to come.
Artificial intelligence (AI) was also highlighted as a systemic force rather than simply a technology sector theme.
The report said AI has implications not only for corporate earnings and productivity but also for labour markets, market structure and the investment process itself.
Despite widespread industry discussion around the technology, researchers found managers are not planning dramatic increases in technology expenditure, instead maintaining baseline spending on frontline staff while making only modest increases in investment in AI capabilities.
CAIA Association chief executive John Bowman said investment organisations needed to broaden how they assess risk and opportunity.
“The era of skills training in investment management has officially given way to lateral, meta level thinking.
“Geopolitical fragmentation, technological disruption, demographic shifts, and the growing convergence of public and private markets require a broader lens that can connect dots across several disciplines.
“This report underscores why systems-level thinking is becoming a strategic necessity for investment organisations seeking to remain relevant, resilient, and aligned with the evolving needs of asset owners.”
Researchers said the implications extend beyond investment strategy to governance, talent management and organisational structure.
The report argued that managers will increasingly be judged on their ability to navigate complexity, integrate insights across disciplines and demonstrate how investment decisions contribute to long-term value creation.
