One in six (16%) asset management firms are predicted to disappear over the next four years as the industry faces a wave of consolidation, a survey from PwC has found.
In the firm's annual Global Asset and Wealth Management survey, it found that inflation, market volatility and rising interest rates were pushing fees down for asset managers, pushing the rate of turnover for firms to twice its historical rates.
As a result, 73% of asset managers said they were considering strategic consolidation with another asset manager in the near future to gain access to new segments of the market, mitigate risk and build market share.
The top ten largest asset managers are therefore expected to control half of all mutual fund assets globally by 2027, up from 42.5% in 2020, PwC said.
Female experts leading the way on asset management boards
Throughout 2022, global assets under management fell by nearly 10% from $127.5trn to $115.1trn, the largest decline in a decade. However, this is expected to reverse by 2027, with AUM reaching a record $147.3trn.
Olwyn Alexander, global asset and 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."
As part of this technological surge, more than 90% of asset managers said they were already using tech like AI, big data and blockchain, with assets managed by robo-advisers expected to more than double by 2027, from $2.5trn to $5.9trn.
Individualised indexing is also gaining popularity, with nearly 40% of institutional investors planning to invest in custom indexing products and almost half of asset managers expecting to add individualised indexing solutions to their offerings.
By 2027, PwC predicted that indexed AUM will more than triple to $1.47trn, with active ETF rising from $4.6bn to $1.1trn.
Private markets will also continue their surge, the survey found, comprising about half of revenues for asset managers by 2027, up from 37.6% in 2020.
Meanwhile, passives will represent just 6.4% of revenues in four years, despite accounting for 26.4% of assets under management last year.
Finally, 57% of asset managers expected employees to increasingly demand disclosures on their organisation's impact on the economy, with half demanding disclosures over ESG matters. However, only 37% said employers were working to improve DEI.
John Garvey, PwC global financial services leader, PwC United States, 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 are 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."
