In a new report ‘Asset & Wealth Management Revolution: Embracing Exponential Change’, PwC anticipates that global assets under management will almost double in size by 2025, from $84.9 trillion in 2016 to $111.2tn by 2020, and then again to $145.4tn by 2025.
While the report predicts rapid growth for the asset and wealth management industry, it warns that firms need to take action now to survive an exponential level of change. Olwyn Alexander, PwC’s Global Asset and Wealth Management Leader, said: “Asset managers can take advantage of this massive global growth opportunity if they’re innovative. But it’s do or die, and there will be a ‘great divide’ between a few have’s and many have not’s. As a result, things will look very different in five to 10 years’ time and we expect to see fewer firms managing far more assets significantly more cheaply.
“The industry must act in three areas. First, asset and wealth managers must be prepared for success in some areas and failure in others. This means they should reorganise their business structure to support their differentiating capabilities and to cut costs elsewhere. Second, every firm must embrace technology, as it impacts all functions and will determine if they win or lose in this fast-changing landscape. And thirdly, different skills are needed, backed by new employment models. Finding, nurturing and retaining the right people will be vital as the industry reinvents itself.”
The wealth of high-net worth individuals and the mass affluent, as well as a pronounced shift to defined contribution retirement saving, are propelling huge growth in the asset and wealth management industry. Retail (mutual) funds (including ETFs) will almost double assets by 2025 and institutional mandates will expand similarly. Alternative asset classes – in particular, real assets, private equity and private debt – will more than double in size, as investors diversify to reduce volatility.
The industry is set to manage a greater share of global retirement and pension funds too. If current growth is sustained, the industry’s penetration rate (managed assets, as a proportion of total assets) will expand from 39.6 per cent in 2016 to 42.1 per cent by 2025.
Asset and wealth managers have been filling financing gaps resulting from the global financial crisis
PwC sees assets growing at 5.7 per cent a year in N. America from 2016 to 2020, slowing to four per cent per annum from 2020 to 2025, lifting assets from $46.9tn to $71.2tn over the nine years.
Europe is projected to grow at 8.4 per cent and 3.4 per cent per annum respectively over the two periods, with assets rising from $21.9tn to $35.7tn.
Asia-Pacific is set to grow by 8.7 per cent a year from 2016 to 2020, accelerating to 11.8 per cent from 2020 to 2025. This will lift regional assets from $12.1tn to $29.6tn.
Latin America is likely to grow by 7.5 per cent per annum from 2016 to 2020, accelerating to 10.4 per cent a year from 2020 to 2025. From $3.3tn, the region’s assets are projected to increase to $7.3tn.
PwC forecasts that funds under active management will climb from $60.6tn in 2016 to $87.6tn by 2025, but their share of overall global assets under management will fall from 71 per cent in 2016 to 60 per cent by 2025. Passives will gain huge market share, rising from 17 per cent of assets under management in 2016 to 25 per cent in 2025, while alternatives will rise from 12 to 15 per cent. Passives’ assets under management will more than double, from $14.2tn to $36.6tn; alternatives from $10.1tn to $21.1tn.
Asset and wealth managers have been filling financing gaps resulting from the global financial crisis. PwC predicts that their involvement in niches such as trade finance, peer-to-peer lending and infrastructure will rise dramatically.
Helping individuals to save for old age, as governments step back, is also a new opportunity to achieve profitable growth. All over the world, governments are relying on individual retirement accounts and defined contribution plans to help people save for retirement. Expansion in these assets as the world population builds wealth and life expectancy rises is one of the main forces driving PwC’s optimistic forecasts for growth in assets under management.
Investment firms will provide capital in areas such as trade finance and peer-to-peer lending. They will be more active in all aspects of syndicated lending activities traditionally undertaken by banks, such as arranging a syndicate of investors for large infrastructure projects. PwC anticipates soaring growth in real assets – mainly infrastructure, and to a lesser extent, real estate. Over the four years from 2016-2020, PwC forecasts a 27.5 per cent per annum growth rate in infrastructure, slowing to 15 per cent from 2020-2025.
Infrastructure assets will expand more than fivefold, from $0.6tn in 2016, to $3.4tn in 2025.