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The asset management industry is expected to undergo significant consolidation within the next four years. A PwC survey of 500 asset managers and institutional investors predicts that one in six companies within the industry will either go out of business or be acquired by larger groups by 2027. This trend is driven by market volatility, high interest rates, and fee pressure.
In addition to consolidation, nearly three-quarters of asset managers are considering acquiring or merging with competitors in response to the challenging market environment. PwC’s global asset & wealth management leader, Olwyn Alexander, highlights that “the big managers are getting bigger” as managers focus on critical mass and maintaining margins amid cost and margin pressures.
This forecast of consolidation comes as asset managers face a decline in assets, with a 10% decrease between 2021 and 2022, reaching $115.1 trillion. Asset managers attribute this decrease to factors such as inflation, market volatility, interest rates, environmental risks, and geopolitics.
To address these challenges, the global asset management industry has been actively engaging in mergers and acquisitions. For example, Franklin Templeton recently agreed to acquire Putnam Investments for over $1 billion, aiming to expand into alternative products and retirement plans. Similarly, Brookfield Asset Management projects that up to 10 leading industry players will emerge through consolidation.
A similar trend is observed in wealth management, with Rathbones acquiring Investec Wealth & Investment for £839 million, resulting in a combined company with over £100 billion in assets under management. Chris Woodhouse, the CEO of wealth manager Evelyn Partners, predicts that ultimately, a handful of UK wealth managers will manage more than £100 billion in assets.
PwC forecasts that by 2027, the top 10 traditional asset managers will control half of all assets going into mutual funds, an increase from 42.5% in 2020. Additionally, robo-advisory services utilizing algorithms to provide financial advice are expected to manage $6 trillion by 2027. This technology offers low-cost personalized advice and has attracted attention, demonstrated by JPMorgan’s acquisition of UK robo-adviser Nutmeg.
The survey conducted by PwC also reveals that 90% of managers believe disruptive technologies like generative AI and blockchain will enhance returns and attract young investors. With the next generation set to inherit $68 trillion, the importance of young investors is expected to grow further.
Fees in the industry, already experiencing a decline of 20-25% for active and passive investment funds between 2017 and 2022, are projected to decrease further. This trend benefits larger players who can absorb lower fees and intensifies competition to gather assets under management.
PwC’s Alexander notes, “There’s a real race in terms of gathering AUM, and that’s putting significant fresh pressures from a competitive perspective on fees, which many say is to the benefit of the investors.”
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