Currently controlling more than US$110tn (more than 20 times the US federal budget), the power the global asset and wealth management industry has in shaping the future is unparalleled. With global assets under management projected to grow by up to 5.6% per annum to US$147.4 trillion by 2025, it can shape a future which is better for investors, shareholders, the economy and the wider society. This is according to PwC’s new global report ‘Asset and Wealth Management Revolution: The Power to Shape the Future’ published today drawing on data, analysis and expert insights as well as the econometric modelling of PwC’s Asset and Wealth Management (AWM) Research Centre.
The report focuses on a number of key findings and areas for the industry to address, which are pivotal to helping the global economy. Asset and wealth management firms can:
Fund the future: There is a widening funding gap which will need to be filled to support recovering economies.
Provide for the future: With aging populations, widening pension gaps and challenging demographics, the AWM industry has a key role to play in supporting investors in meeting their savings’ goals.
Embrace ESG as the future: With US$110 trillion in assets under management, and growing, this industry has the power to literally change the world from an ESG perspective.
Repair, reconfigure and report are the key areas the industry needs to address as it rethinks its strategy to be fit for the future.
Olwyn Alexander, PwC Global Asset & Wealth Management Leader, commented: “Asset and wealth management firms can channel capital and target investment opportunities to lift economies out of recession. It is important to understand the power the industry has in influencing the future. A better future for everyone; investors, shareholders and the economy as a whole. The world we leave for future generations matters. The industry can act now to realise beneficial change.
“While financial return will always be important, increasingly investors are deciding that social return is just as important. What we’re seeing is asset and wealth management firms that deliver standout returns on both the social and financial fronts will be the clear winners over the coming decade — magnets for investment and able to sustain superior returns for shareholders and partners.”
Speaking about the Irish asset and wealth management industry, Trish Johnston, PwC Ireland Leader for Asset & Wealth Management, said: “These growth projections confirm the significant opportunities for Ireland’s asset management industry. PwC Ireland analysis further shows that, with the correct focus, the increased job potential for Ireland in asset management and related financial technology and payments sectors, is in excess of 6,000 over the next five years.
“And with a recent PwC Ireland Poll highlighting that 67% of senior global asset managers plan to increase their presence or relocate key activities to Ireland in the year ahead, Ireland’s advantages are clear: highly talented individuals with deep industry knowledge, well established regional hubs, continued access to the EU market and a similar common law jurisdiction to the UK, with the benefits of the Common Travel Area between our two jurisdictions.
“There is no doubt that Ireland’s fund management industry is strategically positioned to be a progressive truly cross-border industry. However, while the country to date has done very well as a fund administration and processing centre, building on this to attract asset managers to locate here, so funds can be managed directly from Ireland, is vital for continued growth.”
According to the report, the industry can be a powerful engine of recovery and a force for good in a world facing uncertainty and upheaval. Funding the future, providing for the future and embracing environmental, social and governance (ESG) matters are pivotal to this.
At US$41 trillion, non-bank lending now exceeds bank lending in advanced economies and continuing low interest rates, coupled with higher capital adequacy ratios, will increase pressure on banks and their ability to lend. This has created an opportunity for private market funds to help finance businesses with strong growth potential but limited access to mainstream funding. By engaging in financing all along the capital structure, the AWM industry can address one of the key goals of the EU’s Capital Markets Union Action plan and improve the private capital markets.
Pension fund assets are expected to grow to almost US$65tn by 2025.
Within retirement saving, specifically, pension funds now manage more than $50tn in pension assets, and we forecast that this will grow to almost $65tn by 2025. Providing for the future is the other side of the coin to funding the future — the more wealth we can create as a society, the more we can save and the more that will be available to invest. And as people live longer, the asset and wealth management industry can contribute to the resolution of escalating pension gaps and retirement poverty. Saving cash on deposit is no longer tenable in a world of ultra low interest rates and fixed income yields, forcing savers to look for higher yielding, attractive options.
Assets under management in infrastructure funds are expected to double by 2025.
Further opportunities for asset and wealth management firms to provide for the future include making up for the growing shortfall in available infrastructure investment, especially from governments. Within developed markets, there are considerable openings to refurbish roads, airports, hospitals and other such opportunities while accelerating developments in areas such as 5G and renewable energy. As a result, we expect assets under management in infrastructure funds to double by 2025.
Increasingly, investors are putting the environmental and social profile of AWM firms on a level playing field with financial return. A growing number of investors expect asset and wealth management firms to make environmental, social and governance (ESG) issues integral to their investment strategies. This shift is already having a revolutionary impact on product design, fund allocation and performance objectives.
PwC’s analysis shows that ESG-aligned funds cumulatively outperformed their traditional counterparts by 9% from 2010 to 2019. Research also shows that diverse companies, in which more than 30% of leaders are women, are, on average, 15% more profitable than those that aren’t diverse, and businesses that score highly on sustainability tend to outperform those that don’t.
A few tech fixes here or a nod to investors’ ESG demands there won’t be enough to survive and thrive in an industry where the front-runners are already embracing these changes and seizing the opportunities.
Ireland: PwC Ireland analysis shows that with over 170 Asset Management and FinTech firms having already chosen Ireland over the last two years, Ireland has a significant opportunity to be a leading asset management centre, particularly for high value funds and FinTech activity, in a post-Brexit world. Overall, with the correct focus, PwC Ireland anticipates an increased job potential for Ireland in asset management and related financial technology and payments sectors to be in excess of 6,000 over the next five years.
The operational upheaval and market turmoil of the past year have exposed weaknesses for asset and wealth management firms, such as cost inefficiencies and a lack of digital engagement and real-time reporting. The first stage will be rethinking the strategy and then repairing and reconfiguring to fix these problems, followed by reporting to build trust. The report sets out some specific areas on how the industry can accelerate the change that is needed. Some of these areas are listed below:
Sharpen digital connectivity: Look to vendors and fintech innovators to help connect with clients and develop interactive reporting and faster response to enquiries.
Rationalise portfolios: Re-evaluate portfolios and returns before closing or merging unprofitable funds. This will enhance product strength, marketability and profit potential.
Digitise your target operating model: Asset and wealth management firms that embrace digital enablement are far more likely than less tech-savvy competitors to grow and thrive. For example, apply robotic process automation to routine tasks and move to a software-as-a-service (SaaS) cloud platform.
Equip workforces for new demands: A digital organisation needs a digitally skilled workforce. Consider training your people in analytics and visualisation to help tailor investment products and customer experience more effectively. Employees also need expertise in sustainable investment and transitioning to a low-carbon economy.
Engage with society, regulators, clients and stakeholders: Everything you accomplish in your rethinking, repairing, and reconfiguring can be amplified by reporting. Not only is reporting an opportunity to strengthen engagement and trust with clients, shareholders, and even government entities, it’s also an opportunity for you to set a standard in the market.
PwC’s new global report ‘Asset and Wealth Management Revolution: Shaping the future’ looks at the future opportunities and challenges for the asset and wealth management industry. It draws on data, analysis and expert insights as well as on econometric modelling by the PwC Asset and Wealth Management (AWM) Research Centre.
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