The report, based on PwC's latest industry projections and a survey of 250 asset managers and 250 institutional investors, paints the picture of an industry grappling with a set of challenges - digital transformation, shifting investor expectations, consolidation and "retailisation".
As a result, 73% of asset managers are considering a strategic consolidation with another asset manager in the coming months in order to gain access to new segments, build market share and mitigate risks.
Firms are also turning to technology to transform, with more than 90% of asset managers already using disruptive technological tools (including big data, AI and blockchain) to enhance investment performance.
A direct consequence of these pressures - and the drive to deliver at scale amid cost and competitive pressures - is that by 2027, PwC expects the top ten largest asset managers to control around half of all mutual fund assets globally, up from 42.5% in 2020.
Asset managers faced a tough year in 2022, with global assets under management (AUM) falling to USD115.1tn (THB4qn), nearly 10% below the 2021 high (USD127.5tn or THB4.5qn). This represented the greatest decline in a decade. The survey finds that inflation, market volatility and interest rate movements are by far the biggest concerns for both investors and asset managers over the next 12 to 24 months. However, AUM are expected to rebound by 2027, reaching USD147.3tn (THB5.1qn) (representing a compound annual growth rate (CAGR) of 5%).
Olwyn Alexander, Global Asset and Wealth Management Leader, 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-advisors, 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."
Other key findings and themes from the report include:
Asset and wealth managers are turning to AI, disruptive technologies and individualised indexing
PwC predicts assets managed by robo-advisers will reach USD5.9tn (THB206.1tn) by 2027, more than double the figure of USD2.5tn (THB87.3tn) in 2022. Individualised indexing is also gaining popularity, particularly among investors seeking tax optimisation benefits, as well as those interested in ESG, factor investing and algorithmic portfolio construction. Nearly 40% of institutional investors are planning to invest in custom indexing products in the coming 12 to 24 months, whereas almost half of asset managers expect to add individualised indexing solutions to their offering. By 2027, PwC expects direct indexed AUM to have more than tripled to USD1.47tn (THB51.3tn), roughly 1% of total AUM, while active ETFs are forecasted to rise from USD4.6bn (THB160.7bn) to USD1.1tn (THB38.4tn) - accounting for 7.5% of the global ETF market by 2027.
Private markets to drive AWM growth and returns
The report demonstrates that as the global economy heads back into growth, and inflationary and interest rate pressures ease, global AWM revenues will bounce back to reach USD622.1bn (THB21.7tn) by 2027, topping the record highs of USD599.4bn (THB20.9tn) generated in 2021. PwC expects this increase to be led by a continued surge in private markets revenues, which will account for around half of global AWM revenues by 2027, up from 37.6% in 2020. Private markets, which represented 10.6% of AUM in 2022, will drive 49.7% of global revenues by 2027. Meanwhile, passives are set to drive just 6.4% of global revenues by 2027, despite accounting for 26.4% of global AUM in 2022.
APAC and emerging markets to set pace of growth
Asia-Pacific, along with emerging markets in Africa and the Middle East, will set the pace of growth in AUM. In PwC's base-case scenario, growth rates in Asia-Pacific will be roughly 50% higher than in North America by 2027. Previously slow industry expansion in the Middle East - due to complex regulatory environments - is expected to pick up, as AWM organisations seeking new markets for revenue growth have renewed impetus to make inroads into these highly valuable regions.
Purpose, DE&I and ESG are imperative
AWM organisations are embracing purpose-led growth and ESG in areas such as funding for the net-zero transition alongside imperatives to improve diversity, equity and inclusion (DEI) across the industry. More than half (57%) saw employees increasingly demand disclosures on the organisation's impact on the economy, with 50% demanding disclosures over ESG matters. However, only 37% say employers are taking action around improving DEI.
John Garvey, PwC Global Financial Services Leader, PwC United States, said:
"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."
Vilaiporn Taweelappontong, Consulting Leader, PwC Thailand and Financial Services Strategy and Operations Leader, PwC South East Asia Consulting, added:
"Thailand's mutual funds have faced similar challenges in recent years] as their industry peers around the world. Over the next few years, AI will play an increasingly vital role in the management of mutual funds and personal investment portfolios.
"Today, we're witnessing the emergence of robo-advisers that are designed to aid investment management for various purposes, such as retirement planning, real estate investments and savings for children. With extensive use anticipated, AI is poised to drive the development of new products and investment solutions, catering to the needs of customers and investors more effectively than ever before, beyond analysing market conditions, earnings forecasts and investment advice."
Figures from the Association of Investment Management Companies (AIMC) indicate that the net asset value of the Thai mutual fund industry in 2022 was THB4.87tn, a decrease of 9.14% from 2021's figure of THB5.36tn. However, in the first six months of 2023, the net asset value increased 1.84% to THB4.96tn.
This increase was driven by the fund managers' adjustment of investment strategies to align with domestic and international market conditions that are facing economic slowdown, rising interest rates and volatile stock and bond market conditions, it showed.
[1] USD1 = THB34.94 (as of 9 August 2023)
Source: PwC Thailand