A new global survey by PwC has revealed that 16 per cent of asset and wealth managers are expected to close or be swallowed up by another organisation within the next five years.
According to the latest PwC Global Asset & Wealth Management Survey, this rate of turnover — which is twice the historical average — is anticipated as firms come to grips with major issues including the digital transformation, changing investor expectations, and industry consolidation.
The survey determined that almost three-quarters of asset managers are considering undertaking a strategic consolidation with another asset manager in the next few months.
Gaining access to a new segment, client or opportunity was identified by asset managers as the biggest factor driving them to consider consolidation (43 per cent), alongside increasing market share (38 per cent), and mitigating risks (37 per cent).
While these factors are expected to drive a resurgence in mergers and acquisitions (M&As) and partnerships over the medium and longer term, PwC noted that some transactions could be held up by valuation uncertainty and funding constraints in the short term.
“Existential challenges are sweeping the asset and wealth management industry against a backdrop of social, economic, and geopolitical disruption,” commented Olwyn Alexander, global asset and wealth management leader at PwC Ireland.
“The choice is simple — adapt to the new context or fail. Firms that effectively leverage technology such as generative AI and robo-advisers, build meaningful inroads to new and existing customers, diversify their recruitment, and deliver exceptional client experiences will be well-positioned to not only survive, but thrive.”
According to PwC, the top 10 asset managers in the world are expected to control half of all mutual fund assets globally by 2027, up from a share of 42.5 per cent in 2020.
Additionally, the firm has forecast that the assets being managed by robo-advisers will reach US$5.9 trillion by 2027, compared to US$2.5 trillion in 2022.
Almost 90 per cent of the institutional investors surveyed believe that using disruptive technology such as big data, AI, and blockchain would lead to better outcomes and returns.
The survey also determined that more than 90 per cent of asset managers were using these disruptive technological tools to enhance their investment performance.
Growth set to rebound
In 2022, asset managers suffered the biggest decline in assets under management (AUM) of the past decade, PwC reported, with a fall of almost 10 per cent to US$115.1 trillion.
But the firm has predicted a rebound will take place for asset managers by 2027, with AUM climbing to US$147.3 trillion, representing a compound annual growth rate of 5 per cent.
“Asia-Pacific, along with frontier and emerging markets in Africa and the Middle East, will set the pace of growth in AUM. According to our base-case scenario, growth rates in Asia-Pacific will be roughly 50 per cent higher than in North America by 2027,” PwC said.
“Previously, slow industry expansion in the Middle East — due to complex regulatory environments — is expected to pick up, as AWM organisations seeking new markets for revenue growth have renewed impetus to make inroads into these highly valuable regions.”
Global asset management revenues are also forecast to bounce back in the coming years to reach US$622.1 billion by 2027, up from the record high of US$599.1 billion seen in 2021.
PwC suggested this growth would be driven by private markets revenues, which it anticipates will account for approximately half of all global asset management revenues by 2027 versus 37.6 per cent in 2020.
“Private markets, which represented 10.6 per cent of AUM in 2022, will drive 49.7 per cent of global revenues by 2027. Meanwhile, passives are set to drive just 6.4 per cent of global revenues by 2027, despite accounting for 26.4 per cent of global AUM in 2022,” the firm predicted.
Inflation, market volatility and interest rate movements were identified by PwC as the biggest concerns for asset managers and investors over the next 12 to 24 months.
“Many working in the asset management industry have little or no experience operating in this uncertain economic and high-interest environment, which may be prolonged by labour shortages and geopolitical instability,” the firm said.
“While navigating through the immediate storm, they also have to focus on the decisions and investments needed to transform their businesses and deliver long-term viability and growth.”
Earlier this year, the world’s largest asset manager, BlackRock, confirmed that it had abandoned the traditional 60/40 portfolio in response to the new economic regime of higher volatility and sticky inflation.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.