Optimistic Forecasts for AUM growth in the Asset Management Industry are Overinflated, According to New Survey
06 Feb 2019
London, 6 February 2019: Bloomberg Intelligence and Simmons & Simmons today launched their first ‘Asset Management Outlook to 2025’, a survey of nearly 2,000 global buy-side professionals that unveils asset managers’ expectations for financial performance and wellbeing across the sector over the next several years.
The survey reveals that global asset managers are relatively conservative in their predictions for AUM growth, expecting 21% growth to 2025. This demonstrates an expectation for strong, not stellar, growth that is in contrast to some more aggressive forecasts.
Perhaps surprisingly, given concerns over the possible impact of Brexit on British financial services, the UK is expected to experience 22% AUM growth – close to the APAC growth rate which is the highest across the globe – and ahead of both the U.S. and the rest of Europe.
Pressure on Profitability; the Rise of Actively Managed Strategies
Despite the relatively robust expectations for global top-line growth, respondents anticipate fee income to grow more slowly (only 8%) over the same period. This means that asset managers face a further fall in their fee margins – by 11% from their recent value in the period to 2025 – which will undoubtedly mount further pressure on profitability.
To combat this, asset managers expect to see a shift in investment style. 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.
The Rise of Active ETFs
Given the predicted resurgence of active management, it’s interesting to consider that 13% of respondents expect to increase their allocations to ETFs – the second most likely increase in asset class. 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.
Shifting Asset Classes
All respondents also expect to see a change in the asset classes that are favoured over the coming years, driven by both the evolving macroeconomic environment and the preferences of different demographics. For instance, 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.
Sarah Jane Mahmud, a Senior Regulatory Analyst at Bloomberg Intelligence, says “This survey demonstrates that asset managers recognise that it will be challenging to maintain AUM, particularly in light of regulatory reform and supervisory scrutiny. Their response to those challenges will dictate the evolution of the industry – so it’s clear that this will be an extremely influential period.”
Colin Leaver, Head of Asset Management and Investment Funds at Simmons & Simmons, said “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. It’s clear that managers seeking to address these challenges will need to think differently to succeed, through diversification of their businesses and investor offerings coupled with a keen focus on fee margin.”
Click here to read the full ‘Asset Management Outlook to 2025’ report.