Asset managers brace for margin pressure as industry swells to $200 trillion, PwC warns

The global asset management market is set to get bigger in the next half-decade – but that doesn't mean the competition won't get bloodier either.

As the sector's total assets are projected to expand from $139 trillion to $200 trillion by 2030, managers are earning less profit on each dollar they oversee, according to a new PwC report released on Monday.

The global consulting firm's forecast for profitability is bleak despite significant revenue growth, with the report showing a decline in profit earned per dollar of AUM of roughly 19% since 2018, and another 9% drop projected by 2030. Eighty-nine percent of asset managers PwC polled report profitability pressure over the past five years, with only one-quarter expressing confidence in their profitability strategies.

Operating expenses continue to consume more than two-thirds of every dollar earned, with the industry's cost-to-income ratio hovering around 68% as traditional cost-cutting measures have yielded minimal results. Meanwhile, 41% of institutional investors say they are likely to replace an asset manager for cost reasons alone, intensifying fee pressure across the sector.

PwC's analysis projects the industry will capture as much as $230 billion in new revenue through 2030, but how firms capture that opportunity hinges on technology adoption and business model transformation.

The consulting firm noted that "asset managers see AI integration and automation as the most important actions they're taking today to transform and future-proof their business models for 2030." The research also found that two-thirds of institutional investors signal a likelihood to allocate capital to asset managers developing technology capabilities to offer enhanced products and services.

The growing entanglement of traditional asset managers, wealth advisors, and fintech companies is reshaping the competitive landscape. Fifty percent of asset managers surveyed target convergence with wealth management and fintech to drive future revenue growth. This integration is creating more personalized digital experiences while reducing friction across the investment value chain.

Tokenization and digital assets are accelerating this shift, with tokenized fund assets projected to soar from $90 billion in 2024 to $715 billion by 2030, growing at a 41% compound annual rate.

Despite recent challenges, private markets remain the industry's most profitable segment, generating roughly four times as much profit per dollar of assets under management as traditional managers. Private markets revenues are projected to reach $432 billion and account for more than half of total industry revenues by 2030, with alternative assets overall expected to hit $34 trillion.

PwC identified four archetypes of winners positioned to outpace the competition in the coming years. It anticipates full-scale private-to-public hypermarkets will capture nearly one-half of the projected increase in revenues, leveraging data and technology to personalize portfolios at scale. Solutions platforms, which embed within wealth platforms or align with institutional buyers, are expected to capture 14%.

Meanwhile, low-cost manufacturers specializing in exchange-traded funds and collective investment trusts – which by the end of 2024 took the lead from mutual funds in the target-date fund space – are projected to capture 12%. Niche champions, which get their edge from focused specialization, are expected to capture 18% of incremental revenue growth.

Only 42% of firms currently fit one of these winning models. The remaining institutions are left competing in an increasingly commoditized space with declining margins.