Asset management’s game changers for growth
Asset management is poised for significant expansion over the rest of the decade, according to the research undertaken as part of our newly released report, Asset Management 2020: A Brave New World, which predicts that global assets under management (AuM) will rise to around $101.7 trillion by 2020, from a 2012 total of $63.9 trillion. This represents a compound annual growth rate (CAGR) of nearly 6%.
It also finds that assets under management in South America, Asia, Africa and Middle East economies are set to grow faster than in the developed world in the years leading up to 2020, creating new pools of assets that can potentially be tapped by the asset management (AM) industry. However, the majority of assets will still be concentrated in the US and Europe.
Global AuM growth will be driven by pension funds, high-net-worth individuals (HNWIs) and sovereign wealth funds. In particular, three trends will power global growth in assets:
- The increase of mass affluent and high-net-worth-individuals in the South America, Asia, Africa and Middle East region.
- The expansion and emergence of new sovereign wealth funds (SWF) with diverse agendas and investment goals.
- The increasing defined contribution (DC) schemes, partly driven by government-incentivised or government-mandated shift to individual retirement plans.
Asset managers will need to respond…
We have identified six game changers that asset managers will have to analyse and address in order to capitalise on the opportunities this changing landscape presents:
- Asset management moves centre stage: Asset management has long been in the shadows of its cousins in the banking and insurance industries. By 2020, it will have emerged definitively from their shadows.
- Distribution is redrawn – regional and global platforms dominate: By 2020, four distinct regional fund distribution blocks will have formed which will allow products to be sold pan-regionally. These are: North Asia, South Asia, Latin America and Europe. As these blocks form and strengthen, they will develop regulatory and trade linkages with each other, which will transform the way that asset managers view distribution channels.
- Fee models are transformed: By 2020, virtually all major territories with distribution networks will have introduced regulation to better align interests for the end-customer, and most will be through some form of prohibition on having the asset manager allocate to distributors as evidenced in the UK’s Retail Distribution Review (RDR) and MiFID II. This will increase the pressures of transparency on asset managers and will have a substantial impact on the cost structure of the industry.
- Alternatives become more mainstream, passives are core and ETFs proliferate: Traditional active management will continue to be the core of the industry as the rising tide of assets lifts all strategies and styles of management. But traditional active management will grow at a less rapid pace than passive and alternative strategies, and the overall proportion of actively managed traditional assets under management will shrink. PwC estimates that alternative assets will grow by some 9.3% a year between now and 2020, to reach $13 trillion.
- A new breed of global managers: 2020 will see the emergence of a new breed of global managers, one with highly streamlined platforms, targeted solutions for the customer and a stronger and more trusted brand. These managers will not only emerge from the traditional fund complexes, but from among the ranks of large alternative firms, too.
- Asset management enters the 21st century: Asset management operates within a relatively low-tech infrastructure. By 2020, technology will have become mission critical to drive customer engagement, data mining for information on clients and potential clients, operational efficiency, and regulatory and tax reporting. At the same time, cyber risk will have become one of the key risks for the industry, ranking alongside operational, market and performance risk.
“Responding to the impact of the global megatrends and the game changers we’ve identified will require considerable thought in order to create a great strategy – there is no silver bullet to building the successful asset manager of 2020 and beyond,” said John Siciliano, managing director and strategy lead, asset management advisory, PwC US. “Those that are proactive about developing coherent strategies and act with integrity towards clients are likely to build the brands that are not only successful in 2020, but that are still trusted in 2020.”
For further information, contact: John Parkhouse, Asset Management leader, EMEA, or Andrew O’Callaghan, Asset Management 2020, Global Leader.