Global AuM to exceed $100 trillion by 2020
Research from PwC predicts that global assets under management (AuM) will rise to around $101.7 trillion by 2020, from a 2012 total of $63.9 trillion. This represents a compound annual growth rate (CAGR) of nearly 6%.
The report, Asset Management 2020: A brave new world, also finds that assets under management in the SAAAME (South America, Asia, Africa, 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.
In this report, PwC also predicts that:
- AuM in the Middle East and Africa will rise from a total of $0.6 trillion. In 2012 to $1.5 trillion by 2020. This represents a CAGR of nearly 12%.
- AuM in the Asia –Pacific region will rise from a total of $16.2 trillion. In 2012 to $7.7 trillion by 2020. This represents a CAGR of 9.8%.
- AuM in Europe will rise from a total of $19.7 trillion. In 2012 to $27.9 trillion by 2020. This represents a CAGR of 4.4%.
- AuM in North America will rise from a total of $33.2 trillion. In 2012 to $49.4 trillion by 2020. This represents a CAGR of 5.1%.
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 SAAAME 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% 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% to a level of 46.5%, which would in turn represent $130 trillion in Global AuM.
Barry Benjamin, PwC’s global asset management leader, said:
“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.”
Other findings of PwC’s report include:
- Pension fund assets will reach close to $57 trillion by 2020.
- In the Middle East and Africa, pension fund assets will grow by 8.8% a year to reach $5.0 trillion by 2020 from a 2012 total of $2.4 trillion.
- In Asia-Pacific, pension fund assets will grow by 9.5% a year to reach $6.5 trillion by 2020 from a 2012 total of $3.2 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.
- 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.
Mass affluent clients and high-net-worth-individuals in 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.
Africa
From $0.4 trillion and $0.2 trillion, respectively in 2012, assets owned by mass affluent and HNWI investors in Africa are expected to rise to $0.9 trillion and $0.3 trillion respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 10.1%) than for HNWIs (6.0%).
Asia-Pacific
From $20.5 trillion and $12.7 trillion, respectively in 2012, assets owned by mass affluent and HNWI investors in Asia-Pacific are expected to rise to $43.3 trillion and $22.6 trillion respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 9.8%) than for HNWIs (7.5%).
A more prominent role for SWFs in global capital markets…
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.
Asset managers will need to respond…
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
John Parkhouse, PwC’s Europe, Middle East, Africa and India (EMEAI) Asset Management Leader, said:
“The response to the game changers 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.
“The successful asset managers of 2020 will have already started to shape their responses to some or all of these game changers. 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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