Global asset managers are relatively conservative in their predictions for AUM growth, according to a new survey.
Bloomberg Intelligence and Simmons & Simmons launched their first Asset Management Outlook to 2025 survey, which found that global asset managers expect 21% growth to 2025. According to the survey, this demonstrates an expectation for strong, not stellar, growth that is in contrast to some more aggressive forecasts.
The survey of 1,950 buy-side professionals included institutional fund managers, alternative fund managers and private wealth managers, almost half of whom identified themselves as being in and around the C-suite. By job function, the largest cohort was in portfolio management (41%), and geographically the majority was based in Europe (54%), with meaningful responses also from the Americas and the Asia-Pacific region.
According to Colin Leaver, head of asset management and investment funds at Simmons & Simmons, “the breadth of the feedback and seniority of the respondents provides a real insight into the future of the asset management sector over the next seven years, against a background of continued change and an ever-more demanding investor base.”
Here are five other areas where global asset managers expect to see major change over the next seven years.
1. Fee Margins
While AUM often gets the headlines, the real drivers of asset management profitability are fees and costs.
Survey respondents said they expected fee income to grow more slowly — rising by only 8% to 2025. That implies further declines in the fee margin, which survey respondents implied will fall by 11% of its recent value by 2025.
Respondents cited new fee structures among their top negative drivers of fee income over the short term to 2020. According to the study, this could be a possible reality check for those hoping that rising asset prices will drive income growth.
The impact of competition — both from existing competitors and new entrants — was cited as the biggest factor squeezing profits. According to the study, this confirms the “pessimistic, but perhaps realistic, view” that market competition will intensify and lead to a further competitive reduction in fee income.
2. Cost Reductions
Given the expected pressures on fee income, the survey looked at how firms were planning to contain costs and the areas where they nonetheless expected to increase their spending.
Asset managers expect costs to rise moderately faster than fee income to 2025 — a 10% increase in costs versus 8% in income.
According to the survey, the areas of expected cost reduction were “startling.” Asset managers anticipated cuts to the “heart of the traditional asset management business” — portfolio management and dealing and execution. According to the survey, this perhaps reflects the rise of the robo-advisor and more automated dealing and trading infrastructure.
Over the shorter term, respondents said the largest cost increase is expected to come from compliance (cited by almost 20%). Respondents said they were also positioning themselves for the greater use of new technology and new information sources, with large increases expected in new technology investment and the use of big data.
3. The Rise of Actively Managed Strategies
The survey also found that asset managers expect to see a shift in investment style over the next seven years.
The survey revealed that over a quarter (27%) of respondents expressed enthusiasm to expand offerings into alternative investment styles in a bid to capture higher fees and increase overall proceeds.
Similarly, almost a fifth (19%) of traditional fund managers cited a move to actively managed strategies (with their promise of higher fees) as their most likely change, after several years of losing investors to cheaper, passive alternatives.
4. The Rise of Active ETFs
In addition to the predicted resurgence of active management, the survey found that 13% of respondents expected to increase their allocations to ETFs — which was the second most likely increase in asset class.
According to the study, these results indicate that the search for lower cost but higher margin business, combined with the expected move to more quant-based strategies, may have produced a new era of active management using ETFs for traditional fund managers.
5. Shifting Asset Classes
The survey found that all respondents expect to see a change in the asset classes that are favored over the coming years. According to the survey, this is driven by both the evolving macroeconomic environment and the preferences of different demographics.
For example, the survey found that traditional fund managers expect to move from interest-rate sensitive asset classes, such as sovereign and corporate bonds, into equities and infrastructure.
Similarly, alternative managers anticipate a move from CLOs, loans, distressed debt and private real estate into infrastructure and ESG and impact investing.