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The global fund management industry is on track to reach $200tn in assets by 2030, up from $139tn last year, with private markets poised to account for more than half of revenues, according to a report by consultancy PwC.
A survey of 300 asset managers, institutional investors and distributors estimated that revenues generated by private markets would reach $432bn within five years, driven by demand for higher returns and the industry opening up to more retail investors.
Albertha Charles, global asset and wealth management leader at PwC UK, said the findings assumed global inflation and interest rates would continue to come down, which was likely to encourage a shift from cash savings into investment.
Despite the growth opportunities, the report found that asset managers’ profits continued to come under pressure because of rising costs and a race to lower fees amid increasing competition.
The survey found that 89 per cent of asset managers reported profitability pressure over the past five years. According to PwC’s analysis, profit relative to assets under management has fallen 19 per cent since 2018 and is forecast to decline a further 9 per cent by 2030.
“We expect private markets to anchor a lot of the growth in assets under management,” Charles said. “But even though there is a growth opportunity in accruing assets and generating revenues, not everyone is going to benefit. Those who will are the ones that look to reinvent their business models and get clarity on where they bring unique value.”
The broader shift to private assets comes as public stock markets experience a dearth of company flotations and as policymakers pave the way for more investment to flow into unlisted assets, including reforms in the US to allow 401k retirement plans to invest in them.
Private markets are also opening up to more individual investors, with the advent of the Long Term Asset Fund in the UK and an equivalent product in Europe, which combine private assets with easier-to-sell public assets.
But passive funds are also expected to grow rapidly and reach $70tn in assets under management by 2030, up from about $40tn last year. These funds tend to deliver the returns of an index and have lower fees for investors than stockpicker-led funds.
PwC found that almost three-fifths of institutional investors were likely or very likely to replace fund managers with lower-cost alternatives purely because of high fees.
Charles added that there was “a real battle for wealth management” to serve wealthy individuals, which she said was among the faster-growing investor segments.
PwC also noted that the Asia-Pacific region was projected to be among the fastest-growing for the industry, fuelled by factors including expanding middle classes and Japan’s efforts to channel household savings into investments.