PwC: Asset And Wealth Managers Must Be 'fit For Growth' As Heyday Of 30%+ Profit Margins Not Sustainable

Entitled Asset & Wealth Management Revolution: Embracing Exponential Change, the report predicts total AUM will grow by over 6.2% a year, from $84.9trn as of 2016, to $111.2trn by 2020 and then again to $145.4trn by 2025.

According to the report, active management will continue to grow, reaching $87.6trn by 2025. This will be around 60% of global AUM, down from 71% in 2016.

However, passive strategies are expected to hit 25% of global AUM over the same period, compared to a current market share of 17%.

The report said another key beneficiary of the changing environment will be alternatives funds, such as real assets, private equity and private debt, which will see AUM more than double in size, growing to $21.1trn and accounting for 15% of global AUM.

Meanwhile, retail funds, including ETFs, will see their assets almost double.

Elizabeth Stone, UK asset and wealth manager at PwC, explained that while the Big Four firm anticipates a faster rate of growth for passive vehicles, active investment is still growing and "retaining a dominant share of the market".

She said: "It is important to remember that passive returns at a low cost are very attractive in a rising market but this industry has not yet been truly tested by the market.

"When it occurs, an inevitable market correction will underline a continued appreciation for the value of active investments.

"We are optimistic about active and passive investing and both will be key building blocks as the industry looks to achieve the best outcomes for its customers through tailored investments.

"Future success will lie in the way they work together to achieve this."

In this environment, as low-cost products gain market share and larger players benefit from scale economies, there will be further industry consolidation and new forms of collaboration, according to PwC.

"Asset and wealth managers must be ‘fit for growth' or they can expect either to fail or to become acquisition targets.  They must act now," the report said.

It noted challenges for firms facing uncertainty and a margin squeeze at a time when they need to invest in developing new products, new technology and new skills to compete in a new age.

In particular, the "heydays of 30%+ profit margins will not be sustainable in the new world order", the report said.