Overall assets are set to continue growing and the share taken by those using a passive approach will increase, said the report, chiming with views expressed elsewhere.

Another report predicts that the share of assets managed actively will shrink because of the perceived benefits of more passive approaches, such as low cost and inability to consistently beat a broadly efficient market. Change will lead to an industry dominated by a small cluster of mega-firms overseeing large buckets of passively-run assets, it is predicted.

PricewaterhouseCoopers, the professional services firm, joined the ranks of organisations such as Boston Consulting Group and Willis Towers Watson in noting the shift to passive from active investment, although the total size of the AuM pie is also expected to rise across the board.

In a new report, Asset & Wealth Management Revolution: Embracing Exponential Change, PwC said it predicts that global AuM will almost double in size by 2025, from $84.9 trillion in 2016 to $111.2 trillion by 2020, and then again to $145.4 trillion by 2025.

The report also warns firms they must act to survive and thrive in tough competitive conditions.

“Asset managers can take advantage of this massive global growth opportunity if they’re innovative. But it’s do or die, and there will be a ‘great divide’ between few have’s and many have not’s. As a result, things will look very different in five to ten years’ time and we expect to see fewer firms managing far more assets significantly more cheaply,” Olwyn Alexander, PwC’s global asset and wealth management leader, said.

John Blackman, chief executive of JHC, a technology firm working in financial services, said, perhaps unsurprisingly, that trends outlined in the report showed why technology solutions are crucial. “Today’s report from PwC highlights the vital role that technology will continue to play in the asset and wealth management sectors. The market is growing and with it the expectation of clients, and the range of options they require, also escalates,” he said. 

While active management will continue to grow and play an important role, reaching $87.6 trillion by 2025 (60 per cent of global AuM), PwC predicts growth in passive management to reach $36.6 trillion by 2025 (25 per cent of global AuM).

Alternative asset classes - in particular, real assets, private equity and private debt - will more than double in size, reaching $21.1 trillion by 2025, accounting for 15 per cent of global AuM.

In the niche
The industry’s involvement in niche areas such as trade finance, peer-to-peer lending and infrastructure will dramatically increase, PwC said.

“The industry must act in three areas. First, asset and wealth managers must be prepared for success in some areas and failure in others. This means they should reorganise their business structure to support their differentiating capabilities and to cut costs elsewhere. Second, every firm must embrace technology, as it impacts all functions and will determine if they win or lose in this fast-changing landscape. And thirdly, different skills are needed, backed by new employment models,” Alexander said. 

Retail (mutual) funds (including ETFs) will almost double assets by 2025 and institutional mandates will expand similarly. Alternative asset classes - in particular, real assets, private equity and private debt - will more than double in size, as investors diversify to reduce volatility and achieve specific outcomes. The industry is set to manage a greater share of global retirement and pension funds too. If current growth is sustained, the industry’s penetration rate (managed assets, as a proportion of total assets) will expand from 39.6 per cent in 2016 to 42.1 per cent by 2025, PwC continued. 

PwC anticipates assets growing at 5.7 per cent a year in North America from 2016 to 2020, slowing to 4.0 per cent per annum from 2020 to 2025, lifting assets from $46.9 trillion to $71.2 trillion over the nine years. Similarly, Europe is projected to grow at 8.4 per cent and 3.4 per cent per annum respectively over the two periods, with assets rising from $21.9 trillion to $35.7 trillion.

Developing Asia-Pacific’s dynamism is set to spur growth of 8.7 per cent a year from 2016 to 2020, accelerating to 11.8 per cent from 2020 to 2025. This will lift regional assets from $12.1 trillion to $29.6 trillion. Latin America is likely to grow at similarly rapid rates of 7.5 per cent per annum from 2016 to 2020, accelerating to 10.4 per cent a year from 2020 to 2025. From a low base of $3.3 trillion, the region’s assets are projected to increase to $7.3 trillion.

Active investments will continue to lose market share to passives and alternatives, but AuM will increase across all three lines, PwC said. 

“Active, passive and alternative strategies are becoming building blocks for multi-asset, outcome-based solutions. In this context, demand for passive and alternative strategies will grow, but the place for active management will remain,” it said. 

PwC forecasts that funds under active management will climb from $60.6 trillion in 2016 to $87.6 trillion by 2025, but their share of overall global assets under management will decrease from 71 per cent in 2016 to 60 per cent by 2025. 

Passives will gain huge market share, rising from 17 per cent of AuM in 2016 to 25 per cent in 2025, while alternatives rise from 12 per cent to 15 per cent. Passives’ AuM will more than double, from $14.2 trillion to $36.6 trillion; alternatives from $10.1 trillion to $21.1 trillion.