Asset management CEOs are investing for growth

An extract from Fit for the Future: PwC’s 17th Annual CEO Survey

Asset management CEOs are preparing for growth. They’re becoming more confident, taking heart from both rising equity markets and the growing demand for their services. While they recognise that Western economies have not overcome all their fiscal difficulties, CEOs are doing far more than saying they’re optimistic – they’re actively investing in their businesses, seeking to accelerate both organic and inorganic expansion.

That’s why 58% of the 123 asset management CEOs in 35 countries we interviewed for our annual survey plan to hire more staff this year. What’s more, 53% are already investing in technology or have concrete plans to do so. And 41% intend to change their approach to mergers and acquisitions, joint ventures or strategic alliances in order to capitalise on global trends. Clearly, CEOs think there’s an opportunity to significantly improve profits.

Stephen A. Schwarzman, Chairman, Chief Executive Officer and Co-Founder, Blackstone, who was interviewed for the survey, is a strong advocate of investing in technology. “We’ve invested heavily in technology. They [investors] can get information from us faster than virtually anybody in our field. We’ve cut the paper flows and time on things by over 70 percent,” he says.

After a tough business environment in the five years following the financial crisis, our survey shows asset managers becoming notably more confident. Greater optimism is natural, as rising equity markets boosted their profits in 2013.

But we believe the conditions are in place for sustained expansion in assets over the rest of the decade, as our newly released Asset Management 2020 paper explains. Far-reaching changes to pension investment, asset managers’ movement into spaces left free by shrinking bank lending and the expansion of new investor types such as sovereign wealth funds will drive growth.

We foresee the changes being uncomfortable for some managers but offering opportunity to others. The regulatory landscape will become ever more costly and there will be a revolution in the tax landscape. Industry assets will expand rapidly, especially passive and alternative funds. Social media may well disrupt business models and a small number of global mega-managers will emerge.

This fundamental change in the landscape explains not only CEOs’ confidence, but also their intention to invest. Their plans to hire more staff are striking, signalling that CEOs are now in expansion mode. Plans to revamp strategies for mergers and acquisitions, joint ventures and alliances also reflect rising confidence. Finally, increasing technology spending is more important than ever, as big data, social media and digital communications have the power to revolutionise asset management.

Finally, no 2014 survey of asset management CEOs could ignore increasing regulation. New regulations in Europe and the United States – and their associated costs – remain a headwind. Yet many CEOs acknowledge that tougher regulation brings benefits.

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