It is tough out there for asset managers and it is about to get tougher, according to research from PwC.
Profit per AUM has fallen 19 per cent since 2018 and is projected to decline by a further 9.1 per cent by 2030, according to the consultancy’s Asset Management Infrastructure: Rethinking the industry’s piping report.
As pressure on the sector grows to keep up with the advent of artificial intelligence (AI), expansion into private markets and persistent regulatory change, a squeeze on margins will be unwelcome.
This perfect storm will force asset managers to focus on the infrastructure that underpins their organisations, according to Peter Pollini, Financial Services Industry Leader, PwC US, who said it has “quietly become one of the most consequential strategic decisions an asset manager makes”.
“The firms that pull ahead won’t be those that own the most technology, but those that decide deliberately what to build, what to buy and where a partner can do it better,”Pollinisaid
The challenge then is to scale operations without adding disproportionate cost and operational complexity.
More than a fifth (22 per cent) of research respondents report that fee compression significantly constrains infrastructure investment, while a further 37 per cent report a moderate impact, highlighting the growing challenge of balancing short-term profitability with long-term transformation.
PwC noted that asset managers have already invested heavily in digital capabilities over the past decade, but since new technology often sits on top of legacy systems that investment may be undermined.
Almost half (46 per cent) of asset managers surveyed devote at least half of their technology expenditures just to maintain legacy systems, while 29 per cent devote more than two-thirds of such spending to maintain the systems
“As firms layer cloud services, AI tools and digital platforms onto fragmented foundations, the infrastructure beneath them can become the constraint on transformation rather than the technology itself. Modernisation therefore depends on how effectively new capabilities can be integrated, managed and scaled,” Pollina said.
Roland Kastoun, Global Asset and Wealth Management Advisory Leader, PwC US , noted that with the industry’s profits per dollar managed falling by almost a fifth, and with “the bill for the pipes rising”, managers who survive the next five years “won’t be the ones with the flashiest AI, but rather the ones who fixed the so-called boring stuff first”.
The report also highlights challenges for asset managers grappling with a fragmented geopolitical system. The research claimed asset management infrastructure was built on the assumptions of globally integrated markets, cross-border data flows, and broadly aligned regulatory expectations.
PwC said those assumptions are becoming difficult to sustain as regulatory divergence, data localisation requirements, and digital sovereignty initiatives reshape how firms operate across multiple jurisdictions.
Pollina said: “Global managers in particular, must increasingly accommodate different legal and regulatory environments without fragmenting their operating models. This places greater emphasis on infrastructure that can manage jurisdiction-specific requirements while maintaining common standards, controls and processes across the organisation.”
