One-in-six (16%) asset and wealth managers globally are expected to be “swallowed up” or “fall by the wayside” by 2027, according to PwC.
The 2023 global asset and wealth management report, based on PwC’s latest industry projections and a survey of 250 asset managers and 250 institutional investors, indicates that the industry is grappling with challenges such as digital transformation, shifting investor expectations and consolidation.
It revealed that, as a result of the challenges, 73% of asset managers are considering a strategic consolidation with another asset manager in the coming months to gain access to new market segments, build market share and mitigate risks.
The survey also found that firms are turning to technology to transform their business, with more than 90% of asset managers already using disruptive technological tools, including big data, AI and blockchain, to enhance investment performance.
Due to the pressures and the drive to deliver at scale, PwC expects that, by 2027, the top 10 largest asset managers will control around half of all mutual fund assets globally. This is up from 42.5% in 2020.
Also, the report predicts that assets managed by robo advisers will reach $5.9trn by 2027, more than double the figure of $2.5trn in 2022.
Adapt or fail
The report said that the drop in global assets under management (AuM) to $115.1 trn showed the greatest decline in a decade.
It is nearly 10% below the 2021 high of $127.5trn (£99trn, €116trn),
The survey pointed to inflation, market volatility and interest-rate movements as by far the biggest concerns for both investors and asset managers over the next 12 to 24 months.
PwC also predicted that AuM is expected to rebound by 2027, to reach $147.3trn, representing a compound annual growth rate of 5%.
Olwyn Alexander, global asset & wealth management leader at PwC Ireland, said: “Existential challenges are sweeping the asset and wealth management industry against a backdrop of social, economic and geopolitical disruption. The choice is simple – adapt to the new context or fail. Firms that effectively leverage technology such as generative
“AI and robo advisers; build meaningful inroads to new and existing customers; diversify their recruitment; and deliver exceptional client experiences will be well-positioned to not only survive but thrive.”
‘Revenues will bounce back’
Elsewhere, PwC reports that as the global economy heads back into growth, and inflationary and interest rate pressures ease, global asset and wealth management revenues will bounce back to reach $622.1bn by 2027, topping the record highs of $599.4bn generated in 2021.
The firm expects this increase to be led by a continued surge in private markets revenues, which will account for around half of global asset and wealth management revenues by 2027, up from 37.6% in 2020.
It anticipates that private markets, which represents 10.6% of AuM in 2022, will drive 49.7% of global revenues by 2027.
PwC also said that passives are set to drive just 6.4% of global revenues by 2027, despite accounting for 26.4% of global AuM in 2022.
John Garvey, global financial services leader for PwC US, added: “The rebound in equity valuations over the first six months of 2023 is a testament to the resiliency of the markets and the benefits of diversification. We’re in fact already seeing the emergence of a new breed of investment firm: AI tech-enabled, customer-focused and prepared to operate across a wide range of asset types, both within and outside traditional asset and wealth management.”