Passive pressures will drive continued mutual fund consolidation into 2030, PWC says

The investment fund industry is set to undergo seismic transformation in the next six years as fee pressures, the rise of passive investing, and continued consolidation push asset managers to their limits.

A recently published PwC report report projects that passive funds will get a bigger share of the overall US market, going from 44 percent to 58 percent of total mutual fund and exchange-traded fund assets by 2030, as investors gravitate toward lower-cost options.

Amid the increasing preference for passive products, the 2030 mutual fund outlook by PwC forecasts that blended expense ratios for active and passive funds may decline by 19 percent compared to 2022 levels. This continued downward trend in fees is expected to have a direct impact on revenue streams for asset managers, pushing them to find cost efficiencies to remain competitive.

Survival of the cheapest?

The natural upshot, the way PwC sees it, is amped-up consolidation across the industry. The report paints a Darwinian scenario, estimating that up to 20 percent of mutual fund firms operating today could be swallowed up or tap out of the market by 2030. Meanwhile, mega managers are expected to capture the bulk of industry growth, with the top five mutual fund firms projected to manage 65 percent of industry assets under management by 2030, up from 55 percent in 2022.

“Mega managers will continue to dominate as they leverage scale and product diversity, including index funds, ETFs, and bond funds,” the report states. “Smaller firms, lacking these capabilities, may struggle to compete.”

Vanguard, the Jack Bogle-founded index investing titan, may be trying to get ahead of the game. Last week, the Pennsylvania-based firm turned heads with a historic fee reduction across its mutual funds and ETFs, pushing its average free to just seven basis points. Leaning into the low-fee philosophy that put it ahead of the industry in the mid-2010s might not be as effective today, but experts have acknowledged it could gain ground in several key sectors and investor audiences.

Despite challenges on the horizon, PwC predicts overall positive growth for the industry. It projects a compound annual growth rate of 6 percent in mutual fund assets from 2022 to 2030, bringing total assets under management to $38 trillion. That marks a slowdown from the 7.4 percent annual growth seen between 2010 and 2022 but an improvement over the 2.5 percent growth recorded between 2019 and 2022, a three-year blot on the industry's record left by the Covid pandemic.

“[W]e anticipate investor demand for new products to be a significant part of the growth,” the report said, highlighting active ETFs, liquid alternatives, and socially conscious products as promising areas. "However, we expect that there will be competing pressures from investment products that focus on real assets, private equity and private debt in terms of flows from investors looking at ways to increase alpha."