Global managed assets decreased by four percent to $255 trillion in 2022, marking the first decline in fifteen years, according to the new Global Wealth report by Boston Consulting Group (BCG). However, global savings increased by over 6 percent during the same period.
The report attributes the decline in invested assets to factors such as high inflation, subsequent interest rate hikes, a weak year in the stock market, and geopolitical uncertainties arising from the war in Ukraine. The impact was particularly felt in Europe and North America. In contrast, the invested assets continued to grow in Asia-Pacific, the Middle East, Africa, and Latin America in 2022.
Michael Kahlich, managing director at BCG, noted that the decline in invested assets in 2022 followed a significant increase in 2021 when global wealth rose by 10 percent, the highest rate in over a decade. Kahlich stated, “We expect an improved macroeconomic climate and a recovery in the stock markets to lead to a rebound in managed assets this year.” BCG aims for an annual compounded growth rate of 5.3 percent in the coming years, emphasizing that market players need to take action to sustain long-term growth.
Margins under pressure
The financial sector has been facing margin pressure for years, but during that period, asset managers were still able to benefit from favorable conditions in the financial markets. However, in 2022, the picture was less optimistic, as BCG observed increased costs for market participants due to larger front-office teams, wage inflation, and investments in technology. BCG expects costs to remain high as inflation proves more persistent than anticipated.
BCG reported an average decline of 2.3 basis points in the profit margins of asset managers worldwide in 2022. Interestingly, margins in Europe increased by 2.5 basis points, while Asia-Pacific and North America faced the most pressure.
“To remain competitive, asset managers must introduce new initiatives,” said Ivana Zupa, co-author of the Global Wealth report. Zupa emphasized the importance of market players having a scalable growth model to attract clients and the need for a distinctive offering of private investments. She added, “The product offering must be adjusted to the changing interest rate environment.” Furthermore, Zupa highlighted the necessity for a shift in the way financial advice is provided, partly due to the significant rise of artificial intelligence.
Shift towards Asia
Zupa identified significant regional shifts in the financial markets, with Hong Kong expected to overtake Switzerland as a safe haven for foreign capital by 2025. Over the past five years, managed assets in Hong Kong experienced the fastest annual compounded growth of 13 percent compared to other major countries. BCG noted that Hong Kong is actively attracting family offices from mainland China and the United Arab Emirates, while also exploring favorable tax measures and options for digital currency payments.
However, Hong Kong faces growing competition from Singapore, increasingly seen as a safe haven in Asia-Pacific. The report attributed Singapore’s potential to become a financial hub for Southeast Asian investors to its political stability, progressive government policies, and business-friendly environment. BCG stated, “In these turbulent times, the country becomes even more important.” Capital inflows into Singapore are expected to grow by 9 percent annually from 2027, driven in part by a rise in the number of family offices from 100 to 800 over the past five years.