Asset managers face scale vs substance dilemma: SocGen

For fund selectors, the investment universe is getting harder to navigate. Regulation is reshaping product labels, private assets are moving closer to retail portfolios, and technology is changing how risks are assessed. Against that backdrop, choosing between scale and substance has become a challenge.

Digitalisation, decarbonisation and demographics

Asset managers in 2026 are still navigating what Le Treut calls the “persistent themes” of digitalisation, decarbonisation and demographics. The changing themes are playing against a backdrop of macroeconomic uncertainty and evolving regulation.

“Regulatory obligations sit at the forefront of industry concerns,” he says, noting that while enthusiasm for socially responsible investing strategies has moderated, ESG disclosure burden remains heavy. Frameworks such as the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Reporting Directive are demanding attention, complicated by the lack of consistent global standards. At the same time, new European rules like the Digital Operational Resilience Act  (Dora), Liquidity Management Tools (LMTs) and T+1 settlement cycle are forcing firms to dedicate substantial resources to compliance.

The perception that pressure is easing, whether due to the US pushback on ESG or the new Omnibus Directive ( a new package of proposals aimed at streamlining sustainability reporting, known as the EU Omnibus Directive, is “misleading”, according to Le Treut.

“Ongoing margin compression, fuelled by the growth of passive products, is building pressure on active managers to deliver consistent alpha at competitive cost,” says Le Treut. Access to distribution networks and the ability to offer a diversified suite of strategies, from ETFs to private assets, are now essential. “Distribution reach has become as critical as performance in sustaining competitiveness,” he says.

“Private assets and ETFs have become the twin engines of growth,” says Le Treut, pointing to their strong performance and leading investment flows. This pivot away from traditional strategies underscores why asset managers increasingly seek partnership from asset servicing providers to support hybridisation, active ETFs and the retailisation of private capital.

Firms are also investing in AI and data analytics to refine portfolio construction, manage risks and improve client experience, highlights Le Treut. Digitalisation has improved operational efficiency through automation and APIs, while AI is being used to enhance everything from workflow automation to client reporting.

“The growth of semi-liquid structures is creating a growing mismatch between investor expectations and the illiquid nature of underlying assets, making stress testing, secondary markets and gating mechanisms increasingly essential.”

Valuation: a “formidable” obstacle
Operational challenges are most acute in private markets. Valuations, reporting and investor transparency are turning out to be difficult to reconcile with regulatory scrutiny and rising investor expectations, points out Le Treut.

“Valuation remains the most formidable obstacle,” he says. Unlike public markets, private assets lack clear, observable pricing, leaving managers dependent on models and assumptions. Market volatility and regulatory oversight have only heightened the need for defensible valuation frameworks.

Reporting cycles are also accelerating. The expansion of private capital access, particularly via Eltif 2, has pushed valuation intervals from quarterly to monthly or even weekly. “Manual workflows and limited standardisation make timely reporting extremely difficult,” he says. “This is where technology and AI must step in. “In many private-market workflows, paper-based processes still dominate, underscoring the urgency of digitalisation,” adds Le Treut.

Liquidity management compounds the challenge. The growth of semi-liquid structures and the retailisation of private assets have created a mismatch between investor expectations and the illiquid nature of underlying holdings. Stress testing, secondary market access and gating mechanisms are becoming essential tools. Firms that can digitalise and streamline these processes, Le Treut adds, will set the benchmark for efficiency and market leadership as private capital continues to expand.

Scale versus substance
Fund selectors, meanwhile, are wrestling with fee pressures, shifting ESG dynamics and the growth of private markets. Low-cost exposures and ETF strategies have seen sustained inflows, with ETF strategies posting net inflows in 2025 across both institutional and retail channels. But liquidity constraints are prompting more caution, even as retail demand via Eltif 2 ( a collective investment framework allowing investors to put money into companies and projects that need long-term capital) products continues to climb.

ESG, once a differentiator, has become embedded across investment processes. Yet challenges are there. The number of Article 9 funds is dwindling, Le Treut cites, labels are under scrutiny and the ESG data provider universe is consolidating. Enthusiasm for ESG plateaued in the first half of 2025 but has rebounded in recent months, he adds.

“There are blind spots,” says Le Treut. “Liquidity risks within semi-liquid strategies, concentration in fashionable themes like tech and renewables and an over-reliance on labels despite imperfect data. Selectors are blending private capital with liquid strategies, using semi-liquid structures and secondary markets to balance liquidity and return, he says.

The blurring of traditional and alternative products adds another layer of complexity. Hybrid portfolios that combine daily-priced liquid funds with quarterly-priced private assets create operational friction. “Reconciling these timelines is not straightforward,” he explains. “NAVs that were once calculated quarterly are now expected monthly or even weekly.” The overlap between Ucits and the Alternative Investment Fund Managers Directive (AIFMD) regimes further raises compliance costs. Operationally, coordinating multiple share classes, currencies, and reporting standards within single products increases reconciliation risk for legacy platforms.

Le Treut warns against the perception that regulatory pressure is easing. “The reality is profound transformation,” he says, pointing to Eltifs and Long Term Asset Fund (LTAF) reforms, MiCA’s new standards for crypto, and Dora’s overhaul of technology risk. Dora entered into force in January 2025 and is reshaping technology risk management and digital resilience.

T+1 settlement by 2027 will also reshape liquidity and operational practices. Liquidity Management Tools under AIFMD II and Ucits updates will require managers to adopt swing pricing, redemption gates and other mechanisms — backed by real-time stress testing.

The sheer scale of assets branded ESG or sustainable adds another challenge. “The risk is that the industry mistakes scale for substance,” Le Treut cautions. “Greenwashing erodes trust and makes it harder for genuine strategies to scale and tackle systemic crises.”

“The expansion of private capital access, particularly through ELTIF 2, is accelerating valuation and reporting cycles from quarterly to monthly or even weekly, stretching operational frameworks that were never built for that level of scrutiny.”

Operational demands intensify into 2026

“Cross-border distribution is still a major driver,” he adds, pointing to rising wealth in Asia Pacific, Latin America and the Middle East. However, local regulations and cultural factors continue to complicate expansion. In Europe, even with efforts to integrate the single financial market, managers still face barriers such as the UK’s new Overseas Fund Regime, a gateway to allow certain investment funds established outside the UK to be promoted in the UK, including to retail clients. Frameworks such as Ucits and Eltif 2 support passporting, while digital platforms and tokenisation are gradually lowering barriers to entry. Regulatory fragmentation in marketing, disclosure and taxation rules, along with differences in KYC, AML and product governance, remains an obstacle.

Digital transformation, by contrast, is already delivering tangible value. RPA, APIs, and AI-driven tools are streamlining processes from reconciliations to investor onboarding. “We have seen how automation and data integration can dramatically reduce operational risk while improving client experience,” Le Treut says. AI is automating investor KYC and extracting data from fund prospectuses, accelerating turnaround times and reducing errors. Data aggregation via APIs and fintech partners is consolidating fragmented information onto unified platforms, enabling deeper analytics and risk metrics, encouraging open architecture models and the outsourcing of low value-added functions.

Regulation, however, is not easing. He highlights Eltif 2 and LTAF as reshaping retail access to private markets, MiCA as establishing standards for crypto, and Dora as a step-change in how firms address technology risk. The shift to T+1 settlement by 2027 will also force managers to rethink liquidity and risk practices.

LMTs are another critical development. The European regulatory framework around LMTs is evolving, reinforced by AIFMD II, Ucits updates, and new Esma guidelines. The aim is to ensure open-ended funds can absorb redemption shocks without harming investors or creating systemic risks.  “Fund managers will need to embed at least two LMTs, whether swing pricing, anti-dilution levies, redemption gates, notice periods or side pockets, and back them up with real-time stress testing,” he explains. Regular liquidity stress testing will become mandatory, requiring real-time monitoring and effective LMT deployment. This, he adds, will require significant investment in technology for monitoring and deployment.

For Le Treut, the lesson is clear: “The industry must keep investing in scalable technology and stronger partnerships if it is to turn these regulatory and operational challenges into a competitive edge.”