Friday 03 November, 2017
LONDON — The asset management industry is set for booming growth in the next decade, according to a new report by PricewaterhouseCoopers (PwC), but firms must be innovative and embrace technology in order to prosper during this period of « transformational change. » Global assets under management (AuM) are set to rise to $145.4 trillion by 2025, PwC forecasts. In a report released on Monday, the « Big Four » accounted predicted AuM growth of 6.2% per year, with AuM rising from $84.9 trillion in 2016 to $112.2trillion by 2020 and $145.4 trillion by 2025.
Huge growth will be driven by « the burgeoning wealth of high-net-worth individuals and the mass affluent, » Monday’s report said. In a separate report released last week, PwC said the world’s billionaires had a combined wealth of $6 trillion in 2016, up 17% from the previous year.
Asset management has experienced « seismic changes » in regulation and technology since the financial crisis, the report said. These changes, combined with fierce competition, have prompted a « period of reinvention, » which will « accelerate rapidly in the years ahead, forcing the industry to reimagine itself, » it said. Alternative asset classes, such as real estate, private equity, and private debt will more than double in size by 2025. By this point, they will constitute 15% of global AuM as investors seek to diversify to reduce volatility. Passive, rather than active, management is also expected to account for 25% of AuM by 2025.
« Asset managers can take advantage of this massive global growth opportunity if they’re innovative, » said Olwyn Alexander, PwC’s global asset and wealth management leader. « But it’s do or die, and there will be a ‘great divide’ between few have’s and many have not’s. »
Firms must prioritise being efficient and entrepreneurial, PwC said. « 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, » said Alexander. Asset managers must keep abreast of the technological developments driving change, such as those in the machine learning and Artificial Intelligence spaces, the report warned.
« There is a divide between asset and wealth managers who have acted to ensure they are fit for growth, and those who have not, » said Elizabeth Stone, UK asset and wealth manager at PwC. Firms must « embrace technology, » she said, which will « determine if they win or lose in this fast-changing landscape. » The report predicts that asset and wealth managers will increasingly fill « financing gaps, » and provide capital to areas including peer-to-peer lending and infrastructure.
« They will be more active in all aspects of lending activities traditionally undertaken by banks, » it said. As part of this diversification, the report said, there is likely to be « soaring growth » in real assets, predominantly in infrastructure, but also in real estate, private equity and private credit. Stone predicts that 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, » she said. The report also said the use of tax havens by companies and individuals to avoid tax will soon become « unacceptable, » as public demand for businesses to be transparent and pay their « fair share » of tax intensifies.
Source: Business Insider