Asset managers under pressure despite rebound from worst AUM drop in a decade

The global asset management industry faces a medium-term future of increased consolidation according to new research.

But while mergers and acquisitions (M&A) may intensify, the PwC Global Asset & Wealth Management Survey warns that some firms will disappear altogether as they fight for their share of the market.

The report shows global assets under management (AUM) fell by 10% year-over-year to US$115 trillion in 2022, the sharpest decline in a decade, although it is expected to rise to more than $147 trillion by 2027, a compound annual rate of 5%.

Global asset and wealth management revenues will bounce back to reach $622.1 billion by 2027, the report forecasts.

But despite the rebound for revenue and AUM, the survey of 250 asset managers and 250 institutional investors reveals struggles with digital transformation and investor demands among others. 

The ‘retailisation’ trend where private investors are given access to investments usually reserved for institutions is both a challenge for the industry and a key driver of the expected revenue growth. PwC expects that half of global revenues for the industry will come from this sector, up from 38% in 2022 and that passives will drive little more than 6% of revenues despite accounting for 26% of AUM in 2022.

The industry’s challenges are driving expectation of increased M&A with 73% of asset manager respondents indicating plans for a strategic tie-up with another asset manager to expand capabilities, gain market share, and mitigate risks.

Technology uptick

Disruptive technologies such as artificial intelligence (AI) is already being used to boost investment performance by 90% of asset managers participating in the poll.

PwC predicts assets managed by robo-advisers will reach $5.9 trillion by 2027, more than double the figure of US$2.5 trillion in 2022.

Custom indexing is also set for strong growth in the coming years with almost 40% of institutional investors planning to invest in this in the next 12-24 months and almost half of asset managers planning to offer this.

The world’s largest asset managers including BlackRock, Vanguard, and Fidelity are predicted to control around half of all mutual funds globally by 2027 (up from 43% in 2022) according to PwC research.

“Existential challenges are sweeping the asset and wealth management industry against a backdrop of social, economic, and geopolitical disruption,” said Olwyn Alexander, global asset & wealth management leader at PwC Ireland. “The choice is simple – adapt to the new context or fail. Firms that effectively leverage technology such as generative AI and robo-advisors, 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.”