Positive indications for the Channel Islands as PwC global report provides optimistic view on the future of asset management

Recent research from PwC predicting that global assets under management (AuM) will rise to around $101.7 trillion by 2020 from a 2012 total of $63.9 trillion provides good grounds for optimism in the Channel Islands, according to a partner at PwC Channel Islands.

The report, entitled ‘Asset Management 2020: a Brave New World’, also finds that AuM in the SAAAME (South America, Asia, Africa, 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  industry.

However, the majority of assets will still be concentrated in the US and Europe. In Europe, PwC predicts that AuM will rise to $27.9 trillion by 2020 from $19.7 trillion in 2012 - a Compound Annual Growth Rate (CAGR) of 4.4%. In North America, PwC predicts that AuM will rise to $49.4 trillion by 2020 from a 2012 total of $33.2 trillion, a CAGR of 5.1%.

Karl Hairon, Partner at PwC CI, said:

“Given their strength and experience in the asset management industry and their focus on international relationships, we believe the Channel Islands are well placed to play a significant role in the positive story outlined in this major piece of global thought leadership. The report provides a deeper dive into the impact of global economic, social and political mega trends on asset managers and is essential reading for all senior staff who need to keep abreast of changes in the asset management industry landscape.”

The report found that the global growth in assets will be driven by three key trends:

  • The increase of mass affluent and high-net-worth-individuals in the SAAAME region. Mass affluent clients in SAAAME regions will more than double their wealth between 2012 and 2020.
  • The expansion and emergence of new sovereign wealth funds with diverse agendas and investment goals. Sovereign wealth funds based in the Middle East and Africa will grow the fastest, with Asia Pacific also seeing a rapid rise in sovereign wealth fund assets.
  • The increase in ‘defined contribution’ schemes, driven by government-incentivised or government-mandated shifts to individual retirement plans. PwC predicts pension fund assets will grow by 6.6% a year to reach $56.5 trillion by 2020 from a 2012 total of $33.9 trillion.

In the report, PwC also identify six ‘game changers’ that asset managers will have to analyse by 2020 in order to capitalise on the opportunities this changing landscape presents:

  1. Asset management will take centre stage and move out of the shadows of its cousins in the banking and insurance industries.
  2. By 2020, four distinct regional fund distribution blocks will have formed which will allow products to be sold pan-regionally - North Asia, South Asia, Latin America and Europe.
  3. Fee models will be transformed with virtually all major territories with distribution networks introducing regulation to better align interests for the end-customer. This will increase the pressures of transparency on asset managers and have a substantial impact on cost structures.
  4. Alternatives will become more mainstream, passives will be core and ETFs proliferate. PwC estimates that alternative assets will grow by some 9.3% a year between now and 2020, to reach $13 trillion.
  5. There will be a new breed of global managers, with highly streamlined platforms, targeted solutions for the customer and a stronger and more trusted brand.
  6. Technology will become mission critical to drive customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting.

Karl Hairon added:

“The industry stands on the precipice of a number of fundamental shifts that will shape its future. Strong branding and investor trust in 2020 will only be achieved by those firms that avoid making mistakes that attract the ire of investors, regulators and policymakers. There is no single blueprint to building the successful asset manager of 2020 and beyond. The successful asset managers of 2020 will have already started to shape their responses to some or all of these game changers.

“Both Guernsey and Jersey, with their innovative approach to servicing the asset management industry, are well placed to address these issues and embrace opportunities.”

The PwC CI team will share more detailed findings of ‘Asset Management 2020: A brave new world’ in a breakfast briefing on Thursday 6 March 2014 at the Pomme D’Or Hotel, Jersey and on Thursday 13 March 2014 at Old Government House, Guernsey. The briefings will include presentations by Robert Mellor, Partner at PwC UK and key contributor to this piece of global thought leadership.