- Global assets under management expected to rise to $US145.4 trillion by 2025, according to a new report by PwC.
- The sector is experiencing “transformational change,” and firms must be ready to innovate in order to prosper.
- Asset classes and investments are expected to diversify considerably and growth will be driven by the wealth of high-net-worth individuals, the report said.
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 $US145.4 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 $US84.9 trillion in 2016 to $US112.2 trillion by 2020 and $US145.4 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 $US6 trillion in 2016, up 17% from the previous year.
‘It’s do or die’
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.