Global asset management AUM will almost double to $145.4trn by 2025, with passive funds expected to rapidly boost their market share to around 25%, but firms must become business revolutionaries if they are to prosper, according to a new report from PwC.
Entitled Asset & Wealth Management Revolution: Embracing Exponential Change,
the report predicts total AUM will grow by over 6.2% a year, from $84.9trn as of 2016, to $111.2trn by 2020 and then again to $145.4trn by 2025.
According to the report, active management will continue to grow, reaching $87.6trn by 2025. This will be around 60% of global AUM, down from 71% in 2016.
However, passive strategies are expected to hit 25% of global AUM over the same period, compared to a current market share of 17%.
The report said another key beneficiary of the changing environment will be alternatives funds, such as real assets, private equity and private debt, which will see AUM more than double in size, growing to $21.1trn and accounting for 15% of global AUM.
Meanwhile, retail funds, including ETFs, will see their assets almost double.
Elizabeth Stone, UK asset and wealth manager at PwC, explained that while the Big Four firm anticipates a faster rate of growth for passive vehicles, active investment is still growing and “retaining a dominant share of the market”.
She said: “It is important to remember that passive returns at a low cost are very attractive in a rising market but this industry has not yet been truly tested by the market.
“When it occurs, an inevitable market correction will underline a continued appreciation for the value of active investments.
“We are optimistic about active and passive investing and both will be key building blocks as the industry looks to achieve the best outcomes for its customers through tailored investments.
“Future success will lie in the way they work together to achieve this.”
In this environment, as low-cost products gain market share and larger players benefit from scale economies, there will be further industry consolidation and new forms of collaboration, according to PwC.
“Asset and wealth managers must be ‘fit for growth’ or they can expect either to fail or to become acquisition targets. They must act now,” the report said.
It noted challenges for firms facing uncertainty and a margin squeeze at a time when they need to invest in developing new products, new technology and new skills to compete in a new age.
In particular, the “heydays of 30%+ profit margins will not be sustainable in the new world order”, the report said.
PwC predicts this asset growth will be driven by the “burgeoning wealth” of high-net-worth individuals and, on the institutional side, a shift to defined contribution retirement saving
PwC’s global asset & wealth management leader, Olwyn Alexander said: “Asset managers can take advantage of this massive global growth opportunity if they are innovative.
“But it’s do or die, and there will be a ‘great divide’ between few haves and many have nots.
“As a result, things will look very different in five to ten years’ time and we expect to see fewer firms managing far more assets significantly more cheaply.”
PwC’s report also expects asset growth on a global basis to be uneven, with the slowest growth in developed markets and the fastest in developing regions.
The firm anticipates assets in North America to grow at 5.7% a year until 2020, at which point growth will slow to 4% until 2025, lifting assets from $46.9trn to $71.2trn over the nine years.
Meanwhile, the Asia-Pacific region is set to see growth of 8.7% a year from 2016 to 2020, accelerating to 11.8% from 2020 to 2025, bringing assets to $29.6trn over the period.
Europe’s share of global assets will grow at 8.4% a year until 2020, slowing to 3.4% between 2020 and 2025, bringing total assets to $35.7trn.
Stone said: “The UK market is facing its own set of headwinds, including uncertainty around Brexit and the upcoming implementation of MiFID II regulation.
“Nonetheless, the UK remains the largest asset and wealth management centre in Europe and will continue to flourish as a key part of this global growth across the industry.
“The predicted growth in North America, Asia and Latin America will be of utmost importance to the UK industry as it seeks to strengthen its global relationships with emerging markets in a post-Brexit world.
“This will require an open business environment to be maintained post-Brexit in order to ensure the future success of the global industry – of which the UK is a key player.”