Accountancy firm PwC’s latest global asset management survey predicts a Darwinian industry shake-up, forecasting that one in six asset management firms worldwide will disappear by 2027 amid looming consolidation and technological disruption. “The choice is simple – adapt to the new context or fail.”
Global assets under management fell sharply to 115.1 trillion dollars in 2022, a near 10 percent drop from 2021’s record 127.5 trillion, marking the largest decline in a decade, according to PwC’s 2023 Global Asset and Wealth Management Survey.
Despite the challenging year, PwC projects assets under management will bounce back by 2027, reaching a record 147.3 trillion dollars, representing a compound annual growth rate of 5 percent. The report’s findings are based on a survey of 250 asset managers and 250 institutional investors, with inflation, market volatility, and interest rate movements cited as the leading concerns over the next 12 to 24 months.
The survey also indicates a profound shift in the industry’s competitive landscape. A total of 73 percent of asset managers are contemplating strategic consolidation with other managers to expand their market share and manage risks. PwC’s survey foresees a wave of mergers and acquisitions that could result in a sixth of current asset and wealth managers disappearing by 2027, twice the historical rate of turnover.
New context
“The choice is simple – adapt to the new context or fail,” said Olwyn Alexander, Global Asset & Wealth Management Leader at PwC Ireland. “Firms that effectively leverage technology, build meaningful inroads to new and existing customers, diversify their recruitment, and deliver exceptional client experiences will be well-positioned to not only survive, but thrive.”
Meanwhile, technological transformation is also at the forefront. More than 90 percent of asset managers have already adopted disruptive technologies, such as AI, big data, and blockchain. Robo-advisors are forecasted to manage 5.9 trillion dollars by 2027, over double the 2.5 trillion managed in 2022.
The consolidation trend and technological advancements could significantly reshape the distribution of mutual fund assets. PwC expects the top ten largest asset managers to control around 50 percent of global mutual fund assets by 2027, a significant rise from 42.5 percent in 2020.
Private markets boom expected
Private markets, keenly watched in Luxembourg, are also predicted to account for up to 50 percent of asset and wealth management (AWM) revenues by 2027, an increase from 37.6 percent in 2020. This growth will occur as global AWM revenues are projected to hit a new high of 622.1 billion dollars by 2027, surpassing 2021’s record 599.4 billion.
A rise in individualised indexing, particularly among investors seeking tax optimization benefits and those interested in ESG, factor investing, and algorithmic portfolio construction, was another key finding. Almost half of asset managers plan to add individualised indexing solutions to their offerings, and nearly 40 percent of institutional investors plan to invest in custom indexing products within the next 12 to 24 months.
Strong growth seen in Asia-Pacific
PwC’s report also highlighted strong growth potential in the Asia-Pacific region and emerging markets in Africa and the Middle East. The growth rates in Asia-Pacific are anticipated to be roughly 50 percent higher than in North America by 2027. Similarly, the complex regulatory environments in the Middle East, which previously hampered industry expansion, are expected to ease, encouraging AWM firms to enter these promising markets.
In addition to these trends, the importance of purpose-led growth, diversity, equity and inclusion (DE&I), and environmental, social and governance (ESG) considerations have become increasingly evident in the AWM industry.