Last updated: 17:24 / Monday, 10 February 2014
According to PwC

Global AuM To Exceed $100 Trillion by 2020 with Nearly 50% Residing in North America

According to Asset Management 2020: A brave new world, a new report from PwC released on Monday, global assets under management (AuM) will rise to roughly $102 trillion by 2020 from a 2012 total of $64 trillion, representing a compound annual growth rate (CAGR) of nearly 6 percent. This forecasted expansion aligns with the findings of the firm's recently released Global CEO Survey where growth projections among asset management CEOs eclipsed CEOs from numerous other sectors.

AuM in North America is predicted to grow at a CAGR of 5.1 percent to reach over $49 trillion by 2020 (from a 2012 total of $33.2 trillion), exceeding expected AuM for Europe, Asia Pacific and Middle East & Africa combined.

The game changers

As the global asset management industry progresses towards a significant moment in its evolution, PwC has identified six dynamics that should be analyzed and addressed to capitalize on emerging opportunities:

  1. Asset management moves center stage:The changing focus of banks and insurance companies and shifting demographics/markets could propel asset management from the shadows to the forefront. However, rising assets and prominence are typically accompanied by rising costs.  As the asset management industry expands and becomes more visible, new investments in data, technology and talent may be needed to respond to heightened regulatory and competitive pressures.  These expenses could continue to burden profits, which, according to industry analysis, are still 15-20 percent below their pre-crisis levels.
  2. Distribution is redrawn – regional and global platforms dominate: By 2020, four distinct regional fund distribution blocks in North Asia, South Asia, Latin America and Europe are expected to develop regulatory and trade linkages with each other, reshaping the way that asset managers view distribution channels. North American asset managers may need to evaluate their strategy to consider the impact of these linkages.
  3. Fee models are transformed: By 2020, it is likely that major territories with distribution networks may look to introduce regulations to better align interests for the end-customer, which may place more transparency pressure on asset managers and have a substantial impact on the cost structure of the industry. In the US, asset managers are facing the unique confluence of imminent mass retirement and growing healthcare costs which is likely to shift investment strategy towards longer term wealth accumulation with more emphasis on fixed income and income generating assets.
  4. Alternatives become more mainstream, passives are core and ETFs proliferate: Traditional active management should continue to be the core of the industry as the rising tide of assets lifts all strategies and styles of management. However, traditional active management could grow at a less rapid pace than passive and alternative strategies, and the overall proportion of actively managed traditional assets under management is likely to shrink. PwC estimates that alternative assets will grow by some 9.3 percent a year between now and 2020, reaching $13 trillion.
  5. A new breed of global managers: By 2020, the industry is likely to 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 as well.
  6. Asset management enters the 21st century: Today, asset management operates within a relatively low-tech infrastructure, but by 2020 technology may become mission critical to customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting. Moreover, cyber risk will intensify, ranking as a top priority alongside operational, market and performance risk.

"Amid unprecedented economic turmoil and regulatory change, most asset managers have not had time to bring the future into focus," said Barry Benjamin, global asset management leader, PwC. "However, as the industry stands on the precipice of a number of fundamental shifts and the potential for significant volumes of assets, there is more responsibility on firms than ever to manage these assets to the best of their collective ability. Strong branding and investor trust in 2020 will only be achieved by those firms that place a premium on transparency, a concrete value proposition to customers, and a firm commitment to avoiding practices that could prompt concerns among investors, regulators and policymakers."

Overarching trends fueling growth

According to the report, the asset management environment is being reshaped by the convergence of several significant global megatrends including demographic changes, accelerating urbanization, technological breakthroughs and shifts in economic power.  At the client level, PwC predicts that global growth in assets will be driven by three key factors:

  • The increasing use of defined contribution (DC) plans partly driven by government-incentivized or government-mandated shift to individual retirement plans.
  • The increase of mass affluent and high-net-worth-individuals in the SAAAME (South America, Asia, Africa, Middle East) regions where economies are set to grow faster than those in the developed world in the years leading up to 2020.
  • The expansion and emergence of new sovereign wealth funds (SWFs) with diverse agendas and investment goals.

In 2012, the AM industry managed 36.5 percent 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 share of managed assets can increase by 10 percent to a level of 46.5 percent, which would represent $130 trillion in Global AuM.

Pension funds assets

Overall, assets held by mass affluent (wealth between $100,000 and $1 million) and HNWI investors (wealth of $1 million or more) are expected to rise to more than $100 trillion and $76 trillion, respectively by 2020, as compared to $59 trillion and $52 trillion, respectively, in 2012.

While emerging wealth economies in the SAAAME regions will likely serve as the dominant catalyst for growth, North America is projected to continue expanding at a solid pace and ahead of expectations for a similarly mature market like Europe. In 2020, North American mass affluent assets are expected to reach $21.7 trillion (from $13.7 trillion in 2012, a CAGR of 4.9 percent) while HNWI assets will likely top $30 trillion relative to $20.1 trillion in 2012 (CAGR of 4.4 percent).

The size of SWFs is rising fast and their presence in international capital markets is becoming more prominent.  AuM for SWFs is 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.  This is a significant opportunity for strategic expansion for North American asset management firms that invest in the resources and capabilities required to effectively meet the unique needs of SWFs.

"Responding to the impact of the global megatrends and the game changers we've identified will require considerable thought in order to create a great strategy – there is no silver bullet to building the successful asset manager of 2020 and beyond," said John Siciliano, managing director and strategy lead, asset management advisory, PwC US.  "Those that are proactive about developing 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."

To access the whole report, please use the following link.