The asset management industry stands on the edge of a number of fundamental shifts that will shape the future of the industry…
Most asset managers have afforded themselves little time to bring the future into focus and the way in which many of them will operate in 2020, will be significantly different compared with today.
Asset Management 2020 – A Brave New World, sets out how the operating landscape for asset managers will change by 2020 and explains how asset managers can prepare for the challenges ahead and turn them into competitive advantages.
The report’s key messages are highlighted below. They are presented as a series of predictions for 2020, to provide guidelines for asset management industry participants to prepare their operating models, people and processes for the changes ahead.
Watch the interview clips on this page of Barry Benjamin, our Global Asset Management Leader, and our Aura Solution Company Limited Partners talking about the mega-trends and the future of the asset management industry as we see it.
What are your thoughts? Let us know.
The asset management landscape in 2020
Huge rise in assets and shift in investor base. The rise in the volume of investable assets is set to increase from around $64 trillion today to $102 trillion by 2020, a compound growth rate of nearly 6%. Assets under management in the SAAAME (South America, Asia, Africa and the Middle East) economies are set to grow faster than in the developed world. Growth in assets will be driven by three key trends: the government-incentivised shift to individual retirement plans; the increase of high-net-worth-individuals (HNWIs) from emerging populations; and the growth of sovereign wealth funds (SWFs). Pressures on the asset management industry.
Alongside rising assets, there will be rising costs. First, the costs of complying with regulation will remain high. Commercial cost pressures will rise as firms grow their distribution networks. Fees will be under continued pressure amid the ongoing push for greater transparency and comparability. Investment in technology and data management will need to be maintained or increased to maximise distribution opportunities and to cope with regulation and reporting. Nothing to hide, nowhere to hide, and nothing at risk.
Full transparency over investment activity and products will exist at all levels; there will be nowhere for non-compliant managers to hide as regulatory and tax reciprocal rights criss-cross the globe. By 2020, only the plain vanilla managed account will remain outside regulatory reporting. By 2020, regulators will have real-time access to portfolios, cross-referenced to market data.
Gamechangers that will redefine the industry
Asset management moves centre-stage. Changing demographics and markets will thrust asset management to centre-stage. First, regulation will hinder banks and insurers by forcing them to abandon proprietary investing and other core businesses. Second, as the world ages, retirement and healthcare will become critical issues that only asset management can solve. Third, asset managers will become more important in the capital raising required to support growing urbanization and cross-border trade. Fourth, asset managers will be at the centre of efforts by SWFs to diversify their huge pools of assets. Messaging will need to be systematic and consistently focused on the value the asset management industry brings. Distribution is redrawn - regional and global platforms dominate.
By 2020, four distinct regional fund distribution blocks will have formed allowing products to be sold pan-regionally. These are: north Asia, south Asia, Latin America and Europe. Fee transparency goes global.
By 2020, virtually all major territories will have introduced regulation to better align interests with the end customer. RDR or similar regulation on fee models will apply to all major markets, including Asia. Alternatives become more mainstream, passives are core and ETFs proliferate.
By 2020, alternatives and passive products together will represent 35% of assets managed by the industry. The separation between alpha and beta will accelerate as investors increase their investment allocation to passive products in search of low fees and broad beta market exposure. In some parts of the world, alternatives will move into the mainstream to the extent that “alternative” is no longer in common usage by 2020. New breed of global managers emerges.
The creation of new regional blocks and new fund platforms to service those blocks will place the emphasis on cost and efficiencies as never before. Economies of scale will become paramount. As a result, some of today’s large global managers, as well as a handful of alternative managers, will become mega-managers with a foot in all geographies and channels. Branding and developing talent will be at the forefront for a competitive advantage. Asset management enters the 21st Century.
By 2020, technology will become mission critical to drive customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting. By 2020 most global asset managers will have a chief digital officer (CDO).
Aura Solution Company Limited (Aura) is an American registered investment advisor based in Washington D.C. , Pennsylvania with over $3.26 trillion in assets under management. It is the largest provider of mutual funds and the second-largest provider of exchange-traded funds (ETFs) in the world In addition to mutual funds and ETFs, Aura offers Paymaster Services , brokerage services, Offshore banking & variable and fixed annuities, educational account services, financial planning, asset management, and trust services.
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