Global assets under management (AuM) will rise to around USD101.7trn by 2020, from a 2012 total of USD63.9trn, according to PwC.
This represents a compound annual growth rate (CAGR) of nearly six per cent.
The report, Asset Management 2020: A brave new world, 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.
PwC predicts that assets under management (AuM) in Europe will rise to USD27.9trn by 2020, from a 2012 total of USD19.7trn. This represents a CAGR of 4.4 per cent.
Global AuM growth will be driven by pension funds, high-net-worth individuals (HNWIs) and sovereign wealth funds. At the client level, the global growth in assets will be driven by three key trends:
- 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.
In 2012, the AM industry managed 36.5 per cent of assets held by pension funds, sovereign wealth funds, insurance companies, mass affluent and high-net-worth-individuals. If the AM industry is successful in penetrating these clients assets further, PwC believes that the AM industry would be able to increase their share of managed assets by 10 per cent to a level of 46.5 per cent, which would in turn represent USD130trn in Global AuM.
Rob Mellor, asset management 2020 leader at PwC, says: “Amid unprecedented economic turmoil and regulatory change, most asset managers have not had time to bring the future into focus. But the industry stands on the precipice of a number of fundamental shifts that will shape the future of the asset management industry.
“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. Asset managers must deliver the clear message that they deliver a positive social impact to investors and policymakers. The efforts required to satisfy investors and policymakers cannot be left to others.
“The coming years will bring the industry higher volumes of assets than ever before which places more responsibility on firms to manage these assets to the best of their collective ability. Asset managers must clearly outline the value they bring to customers while being fully transparent over fees and costs.”
PwC predicts pension fund assets will grow by 6.6 per cent a year to reach USD56.5trn by 2020 from a 2012 total of USD33.9trn.
In Europe, pension fund assets will grow by 6.2 per cent a year to reach USD13.8trn by 2020 from a 2012 total of USD8.5trn.
Mass affluent (those with wealth between USD100,000 and USD1m) clients and high-net-worth-individuals (wealth of USD1m or more) in South America, Asia, Africa and Middle East regions are key drivers of growth. From more than USD59trn and USD52trn, respectively in 2012, assets owned by mass affluent and HNWI investors are expected to rise to more than USD100trn and USD76trn respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 6.8 per cent) than for HNWIs (4.9 per cent). The single greatest contributor to this surge in mass affluent and HNWI assets is increasing South America, Asia, Africa and Middle East wealth. Mass affluent clients in South America, Asia, Africa and Middle East regions will, for instance, more than double their wealth between 2012 and 2020.
From USD22.8trn and USD17.0trn, respectively in 2012, assets owned by mass affluent and HNWI investors in Europe are expected to rise to USD31.6trn and USD21.6trn respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 4.2 per cent) than for HNWIs (3.1 per cent).
The size of SWFs is rising fast and their presence in international capital markets is becoming more prominent. SWFs’ AuM are currently above USD5trn and PwC predicts this figure will surge to nearly USD9trn by 2020. SWFs based in the Middle East and Africa will grow the fastest, with Asia Pacific also seeing a rapid rise in SWF assets.
PwC has identified six game-changers that asset managers will have to analyse and address in order to capitalise on the opportunities this changing landscape presents:
1. 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.
2. 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.
3. 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.
4. 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 per cent a year between now and 2020, to reach USD13trn.
5. 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.
6. 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.