Although currently a number of countries in Latin America face political and economic uncertainty, the long term growth prospects for the asset and wealth management industry remain strong, according to a new report published by PwC and Sura Investment Management.
The report, titled Asset and Wealth Management Revolution: Latin America’s flourishing opportunities, finds that, despite the challenges faced by the region, assets have grown by 7.9 per cent compounded annual growth rate (CAGR) since 2015 to reach USD 2.4 trillion in 2018. These assets are set to grow further at a CAGR of 11.8 per cent to reach USD5.3 trillion by 2025 driven by a rise in pension fund assets and a flourishing middle class as a younger population enters the work force.
Pablo Sprenger, CEO Sura Investment Management says: “The asset and wealth management industry in Latin America is a long-term growth story and players who are able to successfully position themselves in this market now will reap the benefits for a long time to come.”
The report identifies four key trends driving change in the Latin American asset and wealth management industry:
1. Buyers’ market: Demand for product and fee transparency driven by regulators, as well as the millennial generation becoming the main investor group, are shifting the power from the asset managers towards investors. This will result in the industry having to battle increasing fee pressure on the one hand and increasing costs on the other. Asset and wealth managers must be proactive in light of the current situation, providing value for money and meeting client demands on product, communication and reporting in a cost efficient way.
2. Digital technologies – do or die: Asset managers operating in Latin America will need to adapt to new technologies to enhance the client experience of a young and technology savvy generation. Given this relatively younger population and lower annual income, robo-advisors in the region could see a stronger than expected growth. Asset managers should also look to incorporate new technologies such as Robotic Process Automation (RPA) and Artificial Intelligence (AI) across the value chain to drive down costs and increase efficiency.
3. Funding the future: Latin America faces significant funding pressure and constraints in the coming years, especially as public debt continues to rise. Asset managers should look to play a larger role in this space by providing funding for infrastructure projects in this region and helping save for retirement through relevant product offerings.
4. Outcomes matter: Asset managers across Latin America must adopt new strategies, especially regarding alternatives and ESG, if they are to succeed in the increasingly competitive market. As demand increases, institutional investors will critically analyse alpha and beta – those managers who are able to provide alpha will flourish, but those who cannot will struggle in the coming years.
Fanny Sergent, PwC Partner, says: “We will see major changes to regulations, products, distribution, technology and talent in the coming years in Latin America. In line with this, we believe asset managers are well-placed to seize the opportunities, as long as they take note of the new challenges that will emerge in the shifting environment.”