Global assets under management to exceed $100 trillion by 2020

Ireland - potential to yield an additional 7,000 to 10,000 direct and indirect new jobs in Ireland by 2020

Ireland – potential to grow its funds industry to €3.5 trillion by 2020

Research from PwC predicts that global assets under management (AuM) will rise to approximately $101.7 trillion by 2020, from a 2012 total of $63.9 trillion. This represents a compound annual growth rate (CAGR) of nearly 6%.

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 will drive much of this growth in the asset management (AM) industry. However, the majority of assets will still be concentrated in the US and Europe.

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%.

North America

PwC predicts that assets under management (AuM) in North America will rise to $49.4 trillion by 2020, from a 2012 total of $33.2 trillion. This represents a CAGR of 5.1%.

Asia Pacific

PwC predicts that assets under management (AuM) in the Asia-Pacific region will rise to $16.2 trillion by 2020, from a 2012 total of $7.7 trillion. This represents a CAGR of 9.8%.

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

Speaking about Ireland, Andrew O’Callaghan, Asset Management Partner, PwC Ireland, said:

“With total assets currently under management in Ireland of €2.5 trillion and 20,000 people employed directly or indirectly in the industry, Ireland is amongst the top three locations for this industry in Europe. Assets under Management in Ireland have the potential to grow to €3.5 trillion by 2020 if the industry remains competitive, develops strong connections with emerging new funds centres and continues to market itself positively. This new growth will likely come from emerging markets in Asia and Latin America. We expect Hong Kong and Singapore to emerge as strong funds centres and develop connections with Ireland, Luxembourg and the UK. The increased globalisation of the industry and the rise of a middle class in emerging markets represent a significant opportunity. Ireland has such a diverse range of funds it is well placed to capitalise on these growth trends in the future. We will continue to benefit as an early adaptor of UCITS; Ireland is also in a great position in the Alternatives space, with over 40% of the world’s hedge funds administered here. In addition, passive vehicles such as exchange traded funds (ETFs) have been very attractive to investors and Ireland’s offering in this area backed by the very efficient and internationally respected tax regime for them have been particularly successful.”

"O’Callaghan cautioned however that “Ireland needs to remain competitive and much of this is in the context of Europe remaining competitive. The danger is that if Europe becomes less competitive for a US fund manager to place their funds than Singapore and Hong Kong then clearly we will be in danger of losing that business. Notwithstanding this, with a 10% share of European assets invested in funds currently and having an excellent base from which to grow, huge opportunities remain for further job creation and progress in Ireland.”

Speaking about the global market, Andrew O’Callaghan continued:

“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."

“Strong branding and investor trust in 2020 will only be achieved by those firms that avoid making mistakes which resulted in the financial crisis. Asset managers must deliver the clear message to investors and policymakers that they deliver a positive social impact. The efforts required to satisfy investors and policymakers cannot be left to others."

“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.”

Other findings:

Pension fund assets will reach close to $57 trillion by 2020

PwC predicts pension fund assets will grow by 6.6% a year to reach $56.5 trillion by 2020 from a 2012 total of $33.9 trillion.

Europe

In Europe, pension fund assets will grow by 6.2% a year to reach $13.8 trillion by 2020 from a 2012 total of $8.5 trillion.

North America

In North America, pension fund assets will grow by 5.7% a year to reach $30.1 trillion by 2020 from a 2012 total of $19.3 trillion.

Asia Pacific

In Asia-Pacific, pension fund assets will grow by 9.5% a year to reach $6.5 trillion by 2020 from a 2012 total of $3.2 trillion.

Mass affluent clients and high-net-worth-individuals (HNWIs) in SAAAME regions will drive growth

Mass affluent (those with wealth between USD 100,000 and USD 1m) clients and high-net-worth-individuals (wealth of USD 1 million or more) in SAAAME regions are key drivers of growth. From more than $59 trillion and $52 trillion, respectively in 2012, assets owned by mass affluent and HNWI investors are expected to rise to more than $100 trillion and $76 trillion respectively by 2020. The growth is expected to be higher for the mass affluent sector (with a CAGR of 6.8%) than for HNWIs (4.9%). The single greatest contributor to this surge in mass affluent and HNWI assets is increasing SAAAME wealth. Mass affluent clients in SAAAME regions will, for instance, more than double their wealth between 2012 and 2020.

A more prominent role for Sovereign Wealth Funds (SWFs) in global capital markets.

The size of SWFs is rising fast and their presence in international capital markets is becoming more prominent. SWFs’ AuM are currently above $5 trillion and PwC predicts this figure will surge to nearly $9 trillion by 2020. SWFs based in the Middle East and Africa will grow the fastest, with Asia Pacific also seeing a rapid rise in SWF assets.

Asset managers will need to respond

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

• 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
• 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
• 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
• 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
• 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
• 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

Andrew O’Callaghan continued:

“The response to the gamechangers we’ve identified will require considerable thought in order to create great strategy – there is no silver bullet to building the successful asset manager of 2020 and beyond."

“The successful asset managers of 2020 will have already started to shape their responses to some or all of these gamechangers. Those that develop coherent strategies and act with integrity towards clients are likely to build the brands that are not only successful in 2020, but that are still trusted in 2020.”