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Global AUM to reach $100 trillion by 2020

Feb 12, 2014 @ 1:04 pm

By Carl O'Donnell

The great recession was just a bump in the road for the asset management industry.

By the year 2020, assets under management globally will exceed $100 trillion, according to a report by PricewaterhouseCoopers released Tuesday. Currently, there are $64 trillion in assets under management, clocking in a healthy annual compound growth rate of nearly 6%.

“The recent recession is now firmly in the rear view mirror and there are clear signs of an economy that is growing on a number of fronts,” John Siciliano, a managing director at PwC, wrote in an e-mail. “This benefits the asset management industry in terms of valuation.”

The bulk of this expansion will be driven by nominal GDP growth, which is expected to be especially strong in emerging markets. Developed economies, meanwhile, will still command more assets in absolute terms, according to the the report.

One result of this growth will be an expansion of operations in emerging economies, specifically in South America, Africa, Asia and the Middle East.

Asset managers should expect a particularly large amount of new assets to come from the new mass-affluent class in emerging markets, the expansion of sovereign wealth funds, and an increase in defined-contribution schemes as governments promote individual retirement plans, the report said.

This robust expansion will be accompanied by increases in costs. For example, firms competing for a slice of the emerging-markets pie should expect to invest in expanded distribution networks and product manufacturing capabilities. Information technology expenses also will increase as companies adopt new tools and cope with regulations.

“ETFs will continue to carve new ground while also challenging other higher cost vehicles,” Mr. Siciliano wrote.

Meanwhile, fees earned by asset managers will experience downward pressure as investors continue to push for greater transparency and comparability, the report said.

Asset managers also need to gear up for a changing investment landscape. The recent trend toward increased use of passive investment instruments won't slow down, with these investments reaching $22.7 trillion by 2020, according to the report.

Alternative investments will also see increased popularity. Together, passives and alternatives will grow to 35% of global assets, from around 21% today. Actively managed investments will continue to dominate, but will recede in prominence.

The rapid growth of exchange-traded funds will continue, the report added. Asset managers will offer a wider array of these instruments, which will include exposure to active, passive and alternative investments.

The growth of ETFs will be a bright spot for the industry, as the low operating costs of these investments promises strong profits, the report said.

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