The alternative investment industry is at a pivotal juncture. Once lauded simply for delivering portfolio diversification and alpha, alternative asset managers are now facing a complex and rapidly shifting environment. Even as fundraising remains robust and product innovation accelerates, asset managers are also navigating a rapidly evolving landscape marked by technological disruption, complex and evolving regulation, shifting tax policies, and continuing accounting and reporting requirements. Firms must adapt proactively to capture new opportunities and avoid falling behind.

Technology: Generative AI, Blockchain, and Digitalization Take Center Stage

AI and Automation

The acceleration of generative AI and advanced analytics is rewriting the playbook for deal sourcing, due diligence, portfolio management, and investor communication. Technology is no longer the outcome; it must now be integrated throughout the organization and its processes and functions. Industry leaders are expected to use generative AI not just for data analysis but for creating real-time scenario modeling, modeling risks, automating repetitive fund administration tasks, and drafting personalized investor letters.

Generative AI is increasingly used to draft market commentary, create custom investor reports, and simulate scenario analyses. AI-driven ESG scoring, risk management, and market sentiment analysis are becoming industry norms, improving both compliance and alpha generation.

Fund administrators and custodians have embedded robotics process automation (RPA) and AI in NAV calculations, trade reconciliation, and KYC/AML procedures, improving efficiency and reducing costs.

Blockchain and Tokenization

Asset tokenization on blockchain platforms is poised to expand investor access to private markets and enhance liquidity. Leading custodians and managers are piloting blockchain solutions for streamlined settlement, instant transfer of ownership, and transparent performance reporting.

Digital Transformation and Cybersecurity

Cloud computing, secure data lakes, and enhanced cybersecurity protocols are becoming mandatory as investors and regulators demand more transparency and real-time information. Managers are investing in digital platforms for investor onboarding, reporting, and capital calls. However, digital innovation brings new risks.  Cyberattacks on fund managers and administrators are on the rise, prompting the need for robust IT governance and response planning.

What to Plan For:

• Invest in employee skill uplifting in internal data teams and AI technology.
• Assess your readiness for tokenization in fund structures and distribution channels.
• Upgrade cybersecurity and privacy controls, as digitalization heightens both risks and regulatory expectations.

Regulatory & Compliance: A Shift in Focus, but Still an Imperative

SEC Proposals and Enforcement

While the SEC has withdrawn a number of rules affecting asset managers generally, it continues its enforcement activity relating to the “traditional” abuses in the industry, such as fraud and conflicts of interest. The Commission has also begun the process of developing a clearer regulatory framework for regulating digital assets and has been “crypto-friendlier” as it relates to new products and increased retail access.

The “Retailization” of Alternatives

The Trump Administration’s executive order directing the Department of Labor (DOL) and the SEC to facilitate defined contribution (DC) plan access to alternative assets could open a significant new market for managers. The executive order asks the agencies to reconsider rules around fiduciary duties and alternative investments, making private market strategies more accessible to retail retirement savers. When implemented, the rules changes will also prompt managers to tailor products to meet liquidity, transparency, and investor education standards and address plan sponsor concerns of liability. 

ESG and Global Compliance

ESG continues to be in the headlights of governments and regulators. Managers marketing in Europe and the U.S. must navigate a patchwork of ESG rules, including SEC enforcement against greenwashing and the EU’s Sustainable Finance Disclosure Regulation (SFDR). The SFDR will require managers to track and report ESG metrics with unprecedented rigor, even if domiciled outside the U.S. or the EU.

What to Plan For:

• Review fund structures and distribution channels to capitalize on DC plan access opportunities.
• Continue to focus on the compliance function, especially relating to recordkeeping, and firm marketing and advertising efforts.
• Foster a collaborative culture between your legal and compliance functions.

Tax Legislation Continues to Affect Alternative Asset Managers

U.S. Tax Changes

Changes in tax laws continue to affect the alternative asset industry. Key provisions of H.R. 1 Tax Cuts and Jobs Act — like limitations on interest deductibility (Section 163(j)), changes to carried interest taxation, and increased reporting on foreign accounts — will require managers to revisit fund structures.

Other recent changes, including restrictions on carried interest taxation, limitation of interest deductibility, and increased reporting requirements for digital assets, may also affect fund structuring and compliance.

Global Tax Changes

The Organization for Economic Co-operation and Development’s (OECD) global minimum tax rules (Pillar Two) are reshaping the tax structuring of multinational funds, portfolio companies, and cross-border holding structures, especially for infrastructure and real estate assets. U.S. managers with global footprints must evaluate structures for compliance with minimum tax rules and adjust for differing adoption timelines across jurisdictions.

State and Local Tax (SALT) & IRS Activity

Expect further state-level innovation (or complexity) in pass-through entity taxes, apportionment, and remote work taxation. Additionally, the IRS has stepped up audits of partnership tax returns and is focused on transfer pricing, management fee waivers, and cross-border transactions.

What to Plan For:

• Work with your tax advisors to consider remodeling fund structures in response to tax changes.
• Automate tax data collection for multi-jurisdictional compliance and digital asset reporting.
• Consider the need for investor communications that address potential after-tax return impact on investments.
• Prepare for increased information reporting, especially on digital assets and foreign investments.
• Update compliance processes and stay engaged with advisors on legislative developments

Accounting and Valuation: Fair Value Complexity and Digital Reporting

Fair Value Measurement

With alternative investments often classified as Level 3 under ASC 820, valuation risk is a key audit and investor focus. Increasingly, LPs expect near-real-time access to valuation models and inputs, demanding robust documentation, third-party validation, and transparent methodologies.

Digital Transformation in Reporting

The adoption of digital reporting (XBRL) in private funds is accelerating, with the SEC and institutional LPs favoring standardized, machine-readable statements. Technology-enabled continuous audit and “smart contract” compliance monitoring are emerging best practices.

What to Plan For:

• Build audit-ready documentation for all Level 3 valuation inputs and adjustments.
• Explore digital reporting and real-time dashboard solutions for both LPs and regulators.
• Prepare for increased audit scrutiny and frequent requests for transparency.

2025 and Beyond: Leadership through Adaptation

The path for alternative asset managers in 2025 and beyond is clear: those who embrace technology, invest in proactive compliance, anticipate tax and accounting shifts, and deliver transparency will win investor trust and outperform peers. The stakes are higher, but so are the rewards for forward-thinking managers.

Strategic Actions:

• Embrace and invest in technology adoption for smarter investing and reporting.
• Prepare for “retailization” of alternatives with adaptable, transparent fund structures.
• Stay agile and engaged on regulatory, tax, and accounting developments in every jurisdiction where you operate. Foster a culture of compliance and transparency.
• Communicate clearly with LPs about changes and the steps you’re taking to mitigate risks and seize new opportunities. With advances in technology come greater requests for information and transparency of reporting.

As the industry moves into its next chapter, success will favor those who innovate, comply, and execute with excellence. Connect with a CBIZ professional today.