| Global AuM to exceed $100 trillion by 2020 - PwC |
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February 10th: A report on the global asset management industry published today by PwC, Asset Management 2020: A brave new world, predicts that global assets under management (AuM) will grow from just under $64 trillion at the end of 2012 to almost $102 trillion by 2020 - a compound annual growth rate of 6 per cent.
The report 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 will drive much of the growth in AuM. However, the majority of assets will still be concentrated in the US and Europe.
PwC predicts AuM growth of 4.4 per cent in Europe. 5.1 per cent in North America and 9.8 per cent in Asia-Pacific. The drivers in this growth will be an increase mass affluent and high-net-worth-individuals, the expansion and emergence of new sovereign wealth funds (SWF) and the increasing defined contribution (DC) schemes, partly driven by government-incentivised or government-mandated shift to individual retirement plans.
'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', said Andrew O’Callaghan Asset Management Partner, PwC Ireland. 'Strong branding and investor trust in 2020 will only be achieved by those firms that avoid making mistakes which resulted in the financial crisis. Asset managers must deliver the clear message to investors and policymakers that they deliver a positive social impact. 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.'
Speaking on Ireland O'Callaghan said 'The increased globalisation of the industry and the rise of a middle class in emerging markets represent a significant opportunity. Ireland has such a diverse range of funds it is well placed to capitalise on these growth trends in the future. We will continue to benefit as an early adopter of UCITS; Ireland is also in a great position in the Alternatives space, with over 40 per cent of the world’s hedge funds administered here. In addition, passive vehicles such as exchange traded funds (ETFs) have been very attractive to investors and Ireland’s offering in this area backed by the very efficient and internationally respected tax regime for them have been particularly successful.'
However, O’Callaghan also noted the increased competition in the global fund services industry saying 'Ireland needs to remain competitive and much of this is in the context of Europe remaining competitive. The danger is that if Europe becomes less competitive for a US fund manager to place their funds than Singapore and Hong Kong then clearly we will be in danger of losing that business. Notwithstanding this, with a 10% share of European assets invested in funds currently and having an excellent base from which to grow, huge opportunities remain for further job creation and progress in Ireland.'
Other findings in the report show that pension fund assets will reach close to $57 trillion by 2020. 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 Europe, pension fund assets will grow by 6.2% a year to reach $13.8 trillion by 2020 from a 2012 total of $8.5 trillion while in North America, pension fund assets will grow by 5.7% a year to reach $30.1 trillion by 2020 from a 2012 total of $19.3 trillion. Asia-Pacific will see pension fund assets grow by 9.5% a year to reach $6.5 trillion by 2020 from a 2012 total of $3.2 trillion.
The report also predicts that 'mass affluent' clients and high-net-worth-individuals (HNWIs) in South America, Asia, Africa and Middle East (SAAAME) regions will drive growth. Mass affluent (those with wealth between USD 100,000 and USD 1m) clients and high-net-worth-individuals (wealth of USD 1 million or more) in SAAAME regions are key drivers of growth. From more than $59 trillion and $52 trillion, respectively in 2012, assets owned by mass affluent and HNWI investors are expected to rise to more than $100 trillion and $76 trillion respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 6.8%) than for HNWIs (4.9%). The single greatest contributor to this surge in mass affluent and HNWI assets is increasing SAAAME wealth. Mass affluent clients in SAAAME regions will, for instance, more than double their wealth between 2012 and 2020.
The size of SWFs is rising fast and their presence in international capital markets is becoming more prominent. SWFs’ AuM are currently above $5 trillion and PwC predicts this figure will surge to nearly $9 trillion 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 identifies six gamechangers 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% a year between now and 2020, to reach $13 trillion.
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.
'The response to the gamechangers we’ve identified will require considerable thought in order to create great strategy - there is no silver bullet to building the successful asset manager of 2020 and beyond,' said O’Callaghan. 'The successful asset managers of 2020 will have already started to shape their responses to some or all of these gamechangers. Those that develop coherent strategies and act with integrity towards clients are likely to build the brands that are not only successful in 2020, but that are still trusted in 2020.' |
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