Emerging markets set to drive asset manager growth: report

The report, entitled Asset Management 2020: A Brave New World, predicts the industry’s global AUM will reach US$101.7 trillion by 2020 up from US$63.9 trillion in 2012.

Mandated investments will make up the largest portion of that AUM at US$47.5 trillion. Mutual funds will have US$41.2 trillion in AUM by 2020 and alternative investments will account for US$13 trillion.

The majority of this growth will be driven by high net worth individuals (HNWI), pension funds and sovereign wealth funds, according to the report. In future, the regions of South America, Asia, Africa and the Middle East will hold the greatest opportunity for asset managements, according to PwC, as the mass affluent and HNWI populations grow substantially. For instance, the mass affluent demographic, those individuals with US$100,000 to US$1 million, is expected to double between 2012 and 2020 in those areas.

While the industry’s AUM increases, how those assets are invested is likely to shift in the coming year. By 2020, alternative and passive products will account for 35% of total assets, according to PwC, up from 21% in 2012. This product shift will in large part be due to the industry’s changing regulatory environment.

“Growth in passive will also be driven by bans and cost transparency through regulation,” reads the report, “and, eventually, investors’ desires, along with the trend towards more widely diversified portfolios.”

Just as where people invest is expected to change, how regulators monitor the selling of those investments is likely to take a new form. For example, PwC predicts that technology will allow regulators to have real-time access to investment portfolios and to cross check data in those portfolios with market data.

“Full transparency over investment activity and products will exist at all levels,” says the report, “there will be nowhere for non-compliant managers to hide as regulatory, tax and other information’s reciprocal rights will extend across the globe.”

Furthermore, complying with requirements will likely become more expensive, says PwC, because firms will need to hire more compliance staff to meet their regulatory requirements. Failing to do so will only lead to more costs for asset managers.

“The cost of not successfully meeting these challenges are likely to be increasingly significant – both in terms of monetary fines and reputational damage, both of which the industry can ill afford,” says the report.