Growing personal wealth in emerging markets will contribute to the asset management industry’s booming growth in the next decade, according to a new report by PricewaterhouseCoopers (PwC), but firms must grasp the current ‘digital or die’ moment in order to prosper.
In its report, titled Asset & Wealth Management Revolution: Embracing Exponential Change, PwC predicts that by 2025 global assets under management (AUM) will have almost doubled – rising to $145.4 trillion by 2025 from $84.9 trillion in 2016.
It believes that growth will likely be uneven as developed markets will have less growth from new wealth compared to developing markets.
Asia-Pacific is set to be the most dynamic, with its growth rate expected to accelerate from 8.7% a year from 2016 to 11.8% from 2020 to 2025. PwC calculates this will lift regional assets to $29.6 trillion from the present $12.1 trillion.
Latin America is likely to grow at similarly rapid rates, eventually growing by 10.4% from 2020 to 2025. The region’s assets are projected to increase to $7.3 trillion, from a low base of $3.3 trillion.
Asset class outlook
The report also found that passives will gain a huge market share to capture a quarter of the market by 2025. Alternative asset classes – in particular, real assets, private equity and private debt – will more than double in size, reaching $21.1 trillion by 2025, accounting for 15% of global AUM, the report said.
However, this doesn’t mean the death of active management, which will still have 60% of the global AUM in 2025.
'In the ongoing debate of active versus passive investing, we are optimistic for both. While we anticipate a faster pace of growth for passives due to greater allocations than for active, we still predict growth in active investments, which will continue to preserve active management’s dominant market share,' said one of the report’s authors, Olwyn Alexander.
'It is important to remember that in a rising market passive returns are very attractive at a low cost but that inevitable market corrections will bring a continued appreciation for the value of active investments. Both will be key building blocks in balanced portfolios to meet specific investor outcomes.'
‘It’s do or die’
The financial crisis and technological revolution have put the industry through a period of upheaval, causing it to ‘reinvent’ itself in the last 10 years, but that period will only accelerate rapidly in the years ahead.
Alexander, PwC's global asset and wealth management leader, said: ‘Asset managers can take advantage of this massive global growth opportunity if they're innovative. But it's do or die, and there will be a “great divide” between few have's and many have not's.’
A few ways PwC suggests firms can take action include embracing technology as well as diversifying strategies in order to fill the demand for multi-asset, outcome-driven solutions.
Asset and wealth managers will also increasingly fill ‘financing gaps’ left by the global financial crisis by providing capital in areas such as trade finance and peer-to-peer lending.
To see the full report, click here.