As we move into a new financial year, the outlook for Wealth & Asset management globally is strong. Currently, we are estimating conservative growth in asset under management (AuM) at 4-5% per annum over the next 3-5 years, exceeding world GDP. This is being driven by an increasing need for long term savings due to changes in demographics, more financial responsibility on the individual and the increasing rise of the middle class in emerging markets.
There is also a need for asset management during accumulation and decumulation life phases and we see asset owners continuing to diversify assets in the search for yield. There are challenges to this growth. At national level we are seeing more sovereign wealth funds withdrawing assets. As governments continue to attempt to transfer more financial responsibility onto both employers and the individual, a challenge is appearing on the horizon in that younger generations are less likely to save and less likely to trust financial institutions than their parents.
There are also structural shifts in the industry resulting in pressure on fees, meaning that our projected increase in AuM is unlikely to result in corresponding revenue growth for managers. Value for money of active management continues to be questioned by stakeholders, with investors tiring of high cost active which have not performed. Significant fee compression continues and price is a significant component in net new asset flows. That combined with market volatility and a low interest rate environment does not help asset performance.
These structural changes are resulting in an acceleration of passives and a new breed of alternatives. Indeed if we look at the last year in review, passive inflows accounted for a staggering 80% of net new flows, a trend we expect to continue. Regulation continues to drive growth in passive, encouraging fee transparency, often via ETFs. On the other side, clients are increasingly searching for additional sources of income and uncorrelated returns. Asset managers are enhancing the diversity of alternative products, looking at real estate, private debt, private equity and alternative credit.
In this publication, we’ll be introducing our Wealth & Asset Management team in Dublin and giving you our thoughts on the big topics on the horizon for 2018, from regulatory changes to digital transformation.
It’s an exciting time to be part of this industry!