The report, Asset Management 2020: A brave new world, also finds that assets under management in the SAAAME (South America, Asia, Africa, Middle East) economies are set to grow faster than in the developed world in the years leading up to 2020, creating new pools of assets that can potentially be tapped by the asset management (AM) industry. However, the majority of assets will still be concentrated in the US and Europe.

PwC predicts that assets under management (AuM) in Europe will rise to $27.9 trillion by 2020, from a 2012 total of $19.7 trillion. This represents a CAGR of 4.4%.

Global AuM growth will be driven by pension funds, high-net-worth individuals (HNWIs) and sovereign wealth funds. At the client level, the global growth in assets will be driven by three key trends:

• The increase of mass affluent and high-net-worth-individuals in the SAAAME region.
• The expansion and emergence of new sovereign wealth funds (SWF) with diverse agendas and investment goals.
• The increasing defined contribution (DC) schemes partly, driven by government-incentivised or government-mandated shift to individual retirement plans.

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

John Parkhouse, partner at PwC Luxembourg and Asset Management Leader at PwC for Europe, Middle East and Africa said: “Amid unprecedented economic turmoil and regulatory change, most asset managers have not had time to bring the future into focus, but the industry stands on the precipice of a number of fundamental shifts that will shape the future of the asset management industry. The coming years will bring the industry higher volumes of assets than ever before which places more responsibility on firms to manage these assets to the best of their collective ability. Asset managers must clearly outline the value they bring to customers while being fully transparent over fees and costs.”

Gamechangers to address

PwC has identified six gamechangers that asset managers will have to analyse and address to capitalise on the opportunities this changing landscape presents:

1. Asset management moves centre stage: Asset management has long been in the shadows of its cousins in the banking and insurance industries. By 2020, it will have emerged definitively from their shadows.
2. Distribution is redrawn – regional and global platforms dominate: By 2020, four distinct regional fund distribution blocks will have formed which will allow products to be sold pan-regionally. These are: North Asia, South Asia, Latin America and Europe. As these blocks form and strengthen, they will develop regulatory and trade linkages with each other, which will transform the way that asset managers view distribution channels.
3. Fee models are transformed: By 2020, virtually all major territories with distribution networks will have introduced regulation to better align interests for the end-customer, and most will be through some form of prohibition on having the asset manager allocate to distributors as evidenced in the UK’s Retail Distribution Review (RDR) and MiFID II. This will increase the pressures of transparency on asset managers and will have a substantial impact on the cost structure of the industry.
4. Alternatives become more mainstream, passives are core and ETFs proliferate: Traditional active management will continue to be the core of the industry as the rising tide of assets lifts all strategies and styles of management. But traditional active management will grow at a less rapid pace than passive and alternative strategies, and the overall proportion of actively managed traditional assets under management will shrink. PwC estimates that alternative assets will grow by some 9.3% a year between now and 2020, to reach $13 trillion.
5. A new breed of global managers: 2020 will 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, too.
6. Asset management enters the 21st century: Asset management operates within a relatively low-tech infrastructure. By 2020, technology will have become mission critical to drive customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting. At the same time, cyber risk will have become one of the key risks for the industry, ranking alongside operational, market and performance risk.

Dariush Yazdani, partner, Market Research Institute Leader at PwC Luxembourg concluded: “The projections of our PwC Luxembourg Market Research Institute of global AuM of above $100 trillion means that the asset management industry is looking to a bright future with a significant growth in assets fuelled by increasing investments in passives and alternatives as well as rising wealth in SAAAME. I believe there is a huge opportunity for those asset managers who are able to adapt their business models to the changing landscape and the Luxembourg asset management industry is also set to profit from this growth in the overall industry.”

To download a copy of Asset Management 2020, please visit PwC Luxembourg’s website.