The Strategist

Assets under management of investment companies will grow to $ 145 trillion by 2025

11/02/2017 - 14:31

According to the PwC forecast, assets under management of investment companies will grow by 6.2% per year in the coming years. In 2016, they amounted to $ 84.9 trillion, in 2020 will increase to $ 111.2 trillion, and are expected to reach $ 145.4 trillion by 2025. Yet, the money won’t come easy. "Asset managers will be able to take advantage of this huge opportunity for growth only if they change," said Olwyn Alexander, head of the global asset management department at the wealthy PwC investors. "But this is a question of "do or die," and the difference between the few who will succeed. Number of those who will fail will be huge." According to him, the sector will look different in 5-10 years, there will be fewer management companies able to manage large assets much cheaper for investors.

The demand for passive and alternative strategies will continue to grow, notes PwC, but interest in strategies with active management will also rise. By 2025 the share of passive strategies in the market will grow from 17 to 25%, the share of active strategies will decrease from 71 to 60%.

One of the opportunities for growth for investment companies is help in managing pension money, as governments all over the world are increasingly making it clear that citizens should save for retirement, especially as life expectancy grows, the report says.

"Working citizens should invest more to earn a large pension, so forecasts of significant growth for the asset management sector inspire confidence," Joe Linhares, CEO of the European division of Russell Investments, told FT." Now huge money is not invested and does not bring anything."

According to the OECD, assets of pension funds numbered $ 38 trillion in 2015. After the global crisis of 2008, many large pension funds began to withdraw money from hedge funds with high commissions and shifted to inexpensive funds with passive strategies. Over the past eight years, pension funds with investments in hedge funds would have earned $ 600 million more if that money were placed in the index funds, says founder of CSI Capital Management Leland Faust in a column published by Huffington Post.

"We remain optimistic about both passive and active investment," says Alexander. "Although we expect more growth of funds with passive strategies, since they have a large inflow, we are also waiting for the growth of active investments that will retain the dominant market share. "Passive investments are very attractive in the growing market because of the low cost, but with the inevitable market correction, interest in active investments will also grow.

Funds with active strategies will not have it easy. "The task will be almost unaffordable for some funds with active management, because their profitability will be under pressure", - said an analyst at investment bank Liberum FT Justin Bates.

After the crisis of 2008, when the central banks have lowered rates and funds with active management faced difficulties, only exchange-traded funds (ETFs) raised $ 2.8 trillion of fresh money (data of ETFGI London consulting firm).

Net inflow to passive funds of BlackRock is $ 1.5 billion a day, and the assets of all funds of the company recently reached $ 6 trillion. BlackRock is the world's largest provider of funds with passive management and ETF. BlackRock’s founder, Larry Fink, believes the influx came with stabilization of the political situation in Europe, the confident growth of China's economy, and the beginning of economic growth in Japan.

Assets of BlackRock’s main competitor, Vanguard, reach $ 4.7 trillion, and net inflows in the first nine months of the year amounted to $ 300 billion. Vanguard came up with a cheap index funds under leadership of its founder Jack Bogle, who since 1996 is not involved in its management. "If ever there is a monument to the man who did more than others for US investors, it certainly should be a monument to Jack Bogle," - said Warren Buffett once.

Another source of asset growth is growth of personal wealth. In 2016, accumulated capital of billionaires increased by 17% to $ 6 trillion, according to a joint report of UBS and PwC. The number of people with a fortune of $ 1 billion in 2016 increased by 10% to 1542.