Huge rise in assets and shift in the investor base
Up until end-2019 global assets grew faster than PwC Lux expected. The forecast model in 2014 predicted that by 2020 the AM industry would manage USD 101.7tn of clients’ assets. In our update in 2017 we increased our estimations for the industry to reach USD 111.2tn AuM by 2020.
In reality, asset growth grew at a slightly faster clip, posting a 9.0% CAGR from 2015 to reach USD 110.9tn as of end-2019.
PwC Lux projected that increasing investor interest in passive and alternative strategies would see these investments constitute 35% of total industry assets by 2020.
As of the end of 2019, assets in alternatives had risen by a CAGR of 10.1% to USD 13.2tn from 2015, and passives had grown by a CAGR of 17.4% to USD 23.4tn; together making up 33% of total industry assets. As expected, this growth in alternatives was driven by a low interest environment and institutional demand for alpha. Demand for lower fees and stronger performance has also promoted a shift towards passives as predicted.
Technology: do or die
PwC predicted that, by 2020, technology would become mission critical to driving customer engagement, gathering and synthesising data, operational efficiency, and regulatory and tax reporting.
As predicted, technology has evolved to become one of the key focus areas of the asset management industry, with all leading industry participants attributing unprecedented attention to the importance of digitalisation and the opportunities that it presents.As a result, leading managers in 2020 are embracing digitalisation in order to thrive in the face of rising competition and disruption – and the increasingly digital world we find ourselves in as a result.
Distribution is redrawn
AWM 2020 predicted that, by 2020, four distinct regional fund distribution blocks (North Asia, South Asia, Latin America and Europe) would have formed, marking a move towards overcoming the fragmented nature of the regional fund industry and allowing for products to be sold pan-regionally.
While we have seen this materialise to a certain extent, the development of passporting and inter-regional distribution blocks has been slower than expected. While we do believe that these efforts will progress in the future, development will likely be slow – given the varied interests of each of the countries and regions and the lack of an economic or political union comparable to the EU. Further, the decline of globalisation amid rising nationalism and inter-regional disputes could further complicate regional distribution.
The Impact of COVID-19
Interestingly, the COVID-19_19 pandemic has not reversed any trends. In fact, instead of altering the course of the industry, it has accelerated whatever trajectory it was on before. Covid 19 has magnified certain pre-existing trends namely digitalisation, the shift to alternatives and sustainable development and the popularity of passives and increasing asset concentration, bringing them atop of mind for all stakeholders within the industry.
Read the full report here.