Goldilocks has left the constructing however consultancy agency, Oliver Wyman, isn’t forecasting a bear marketplace for the worldwide funds administration and monetary advisory sectors over the subsequent 5 years.
If not fairly bullish, the most recent Oliver Wyman annual evaluate of the asset and wealth administration industries – produced in affiliation with Morgan Stanley – is comparatively upbeat on the medium-term prospects for each total.
Whereas the 15-year submit international monetary disaster calm has ended with a bout of excessive inflation, elevated volatility and rising geopolitical tensions, the research suggests fund managers and advisory corporations, particularly those who adapt quick to new circumstances, will climate the storm.
“Regardless of these headwinds, we count on that the asset and wealth administration industries will proceed to be among the many most worthwhile within the monetary providers sector, producing comparatively enticing returns on fairness (RoE),” the paper says. “Nevertheless, the mix of decrease prime line development and a cussed fastened price base that threatens to rise quicker than income highlights the fragility of the industries’ working mannequin, the place each future market downturn will likely be that rather more punishing.”
Over the five-year interval from 2022 to 2027, Oliver Wyman forecasts complete “externally managed belongings” for fund managers to develop at an annualised charge of seven per cent – or 3.6 per cent if measured from the 2021 peak – with non-public markets the important thing driver.
“Because of this, we mission trade income to develop at a barely slower tempo of 5.2% versus 7% of AuM [assets under management] for a similar interval, however with a pronounced shift towards non-public markets and choose hedge fund methods, which can represent greater than half of the entire income pool of the trade by 2027,” the report says. “We count on retail/wealth development to proceed to outpace institutional at 7.9% vs. 5.5%, propelling it to over 60% of worldwide third-party man-aged AuM by 2027.”
Passive funds also needs to acquire on the expense of energetic, notably in ‘core’ asset lessons, possible breaching the 50 per cent market share stage someday through the five-year interval.
However with flows between actively managed funds presently occurring at three-times the speed in comparison with the cash flowing into listed merchandise, well-positioned energetic managers stand to reap the advantages.
Lengthy-standing tendencies reminiscent of payment compression, altering investor dynamics and expertise modifications will proceed to place stress on asset administration working fashions, the paper says, with companies in a position to shift 4 ‘levers’ to manage, together with “de-scoping, organizational effectiveness and simplification, workforce administration, and third-party price administration”.
Many fund managers have already flagged price cuts of 5-15 per cent however Oliver Wyman suggests financial savings within the order of 20-40 per cent is perhaps potential for corporations “by making troublesome decisions to trim their structural price base”.
And with international wealth tipped to develop 6 per cent yearly over the subsequent 5 years, the report says monetary recommendation also needs to be in excessive demand.
Particularly, wealth administration corporations are set to learn by specializing in the excessive web value and household workplace sectors however the mass-market additionally provides alternatives because the outlined contribution (DC) retirement financial savings sector (reminiscent of KiwiSaver) blooms, in line with Oliver Wyman.
“Given the huge quantity of belongings managed at DC globally ($16 trillion) the chance to ship monetary recommendation could be very giant,” the report says. “We see a set of fashions appropriate for this section, from digital advisory fashions to serve mass and mass-affluent shoppers, which might generate $12-18 billion in annual income, to hybrid and full-service choices for prosperous or wealthier shoppers, which might deliver $60-80 billion in annual income.”
Oliver Wyman, a part of the Marsh McLennan group that additionally homes Mercer, additionally highlights the quickly rising alternatives and dangers introduced by ‘generative’ synthetic intelligence (AI) for each asset managers and monetary advisory corporations.
“Gen AI isn’t a separate development driver in itself. It has the potential to supercharge effectivity beneficial properties throughout the working mannequin, which might unlock much more sources to spend money on worthwhile development areas,” the research says. “Whereas the expertise underlying Gen AI has been round for a number of years, we imagine we at the moment are at a ‘tipping level’ when it comes to its means to be deployed on a widespread foundation throughout asset and wealth managers.”
The report flags 25 ‘use circumstances’ for the hyped-up AI expertise throughout the asset administration worth chain and an additional 22 potential makes use of in monetary recommendation companies.