PwC has just released its 2023 Global Asset and Wealth Management Survey, to assess the industry’s response to recent macroeconomic and business environment changes, gather insights on the direction those changes are likely to take and evaluate the level of preparedness for this.
One in six asset and wealth managers globally are expected to be swallowed up or fall by the wayside by 2027, twice the historical rate of turnover, according to a new survey by PwC.
The report, based on PwC’s latest industry projections and a survey of 250 global asset managers and 250 institutional investors, paints the picture of an industry grappling with a set of challenges – digital transformation, shifting investor expectations, consolidation and “retailisation.”
As a result, 73 per cent of asset managers are considering a strategic consolidation with another asset manager in the coming months in order to gain access to new segments, build market share and mitigate risks, the survey reveals.
Firms are also turning to technology to transform, with more than 90 per cent of asset managers already using disruptive technological tools, including big data, AI and blockchain, to enhance investment performance, it states.
A direct consequence of these pressures – and the drive to deliver at scale amid cost and competitive pressures – is that by 2027, PwC expects the top 10 largest asset managers to control around half of all mutual fund assets globally, up from 42.5 per cent in 2020.
Asset managers faced a tough year in 2022, with global assets under management falling to $115.1 trillion, nearly 10 per cent below the 2021 high ($127.5 trillion). This represented the greatest decline in a decade, the firm said.
The survey finds that inflation, market volatility and interest rate movements are by far the biggest concerns for both investors and asset managers over the next 12 to 24 months. However, AuM is expected to rebound by 2027, reaching $147.3 trillion, representing a compound annual growth rate of 5 per cent.
“Existential challenges are sweeping the asset and wealth management industry against a backdrop of social, economic and geopolitical disruption,” Olwyn Alexander, global asset and wealth management leader at PwC Ireland, said.
“The choice is simple – adapt to the new context or fail. Firms that effectively leverage technology such as generative AI and robo-advisors, 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,” she continued.
PwC also predicts assets managed by robo-advisors will reach $5.9 trillion by 2027, more than double the figure of $2.5 trillion in 2022. Individualised indexing is also gaining popularity, particularly among investors seeking tax optimisation benefits, as well as those interested in ESG, factor investing and algorithmic portfolio construction.
Nearly 40 per cent of institutional investors are planning to invest in custom indexing products in the coming 12 to 24 months, whereas almost half of asset managers expect to add individualised indexing solutions to their offering, the firm continued. By 2027, PwC expects direct indexed AuM to have more than tripled to $1.47 trillion, roughly 1 per cent of total AuM, while active ETFs are forecasted to rise from $4.6 billion to $1.1 trillion – accounting for 7.5 per cent of the global ETF market by 2027.
Private markets to drive AWM growth and
The report also shows that as the global economy heads back into growth, and inflationary and interest rate pressures ease, global AWM revenues will bounce back to reach $622.1 billion by 2027, topping the record highs of $599.4 billion generated in 2021. PwC expects this increase to be led by a continued surge in private markets revenues, which will account for around half of global AWM revenues by 2027, up from 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.
Asia-Pacific, along with emerging markets in Africa and the Middle East, will set the pace of growth in AuM, the firm added. In PwC’s base-case scenario, growth rates in Asia-Pacific will be roughly 50 per cent higher than in North America by 2027. 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. Purpose, DE&I and ESG are imperative.
AWM organisations are embracing purpose-led growth and ESG in areas such as funding for the net-zero transition alongside imperatives to improve diversity, equity and inclusion (DEI) across the industry, the firm said. More than half saw employees increasingly demand disclosures on the organisation’s impact on the economy, with 50 per cent demanding disclosures over ESG matters. However, only 37 per cent say employers are taking action to improve DEI.
John Garvey, PwC global financial services leader at PwC United States, said: “The rebound in equity valuations over the first six months of 2023 is a testament to the resiliency of the markets and the benefits of diversification. We’re in fact already seeing the emergence of a new breed of investment firm: AI tech-enabled, customer-focused and prepared to operate across a wide range of asset types, both within and outside traditional asset and wealth management.”
The survey covered 250 global asset managers and 250 institutional investors, with more than half boasting assets of over $10 billion. Public and private pension funds together accounted for more than 60 per cent of the institutional investor respondent base.