Asset and wealth management industry to grow to $147 trillion by 2025

07 January 2021 Consulting.us
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Global assets under management (AuM) is expected to grow 5.6% per annum from its current level of $110 trillion to $147 trillion in 2025, according to a recent report from PwC.

The $147 trillion figure is on the optimistic end of the projections from PwC’s Asset and Wealth Management Research Centre – which outlined three scenarios. In the best case, the globe would see a rapid recovery starting in Q4 2020, urged on by increased fiscal stimulus that revitalizes economies and boosts investor confidence.

The base – and most probable case – will see a sustained pandemic hold off economic recovery until mid-2021. AuM growth would drop to a CAGR of 4.4% to reach $139 trillion in 2025.

In PwC’s worst case scenario, there would be a double-dip recession amid further lockdowns and delayed vaccine distribution, resulting in an economic recovery starting at the end of 2021. AuM growth would drop further to 3.1% CAGR to reach $131 trillion in 2025.

In all scenarios, AuM expansion would be strongest in North America. Growth would be fastest in Latin America and Asia-Pacific, albeit starting from a much smaller base level.

Global AuM and regional split of global AuM

According to PwC’s report, asset managers can be a force for good by aiding the economic recovery and pursuing environmental, social, and governance (ESG) goals through their investments.

Continued low interest rates and higher capital adequacy ratios have put pressure on banks’ lending ability. This, in turn, has opened up opportunities for private market funds to finance promising businesses with limited access to mainstream funding – and achieve superior fund returns as alternative providers of capital in the process. PwC notes that non-bank lending, at $41 trillion, now exceeds bank lending in advanced economies.

Asset and wealth management firms also have the opportunity to fill in a growing gap in infrastructure investment from governments, with considerable openings to refurbish roads, airports, and hospitals, and develop 5G and renewable energy. PwC expects AuM in infrastructure funds to double by 2025, as a result.

“Asset and wealth management firms can channel capital and target investment opportunities to lift economies out of recession,” said Olwyn Alexander, PwC global asset & wealth management leader. “It is important to understand the power the industry has in influencing the future.”

A growing number of investors are also expecting asset managers to make ESG issues a core part of their investment strategy. And though many investors will keep their priorities set on financial returns, ESG-aligned funds aren’t necessarily underperformers. In fact, PwC says that ESG-aligned funds cumulatively outperformed their traditional counterparts by 9% from 2010 to 2019.

“While financial return will always be important, increasingly investors are deciding that social return is just as important,” Alexander said. “What we’re seeing is asset and wealth management firms that deliver standout returns on both the social and financial fronts will be the clear winners over the coming decade — magnets for investment and able to sustain superior returns for shareholders and partners.”