A view of the Asset Management industry in 2020
The asset management industry is expected to change significantly by 2020. On the occasion of the ALFI Spring Conference, Dariush Yazdani, Partner at PwC Luxembourg explains the opportunities that the industry can embark on.
What are the key opportunities for the Asset Management Industry in the future?
The asset management industry will operate amid a significantly changed landscape in 2020. We have identified a number of key game changers that the industry will have to address in order to capitalize on these opportunities.
These include among others, the asset management industry taking centre stage, the emergence of four new fund distribution hubs revolving around North Asia, South Asia, Latin America and Europe as well as Alternatives becoming mainstream and passives core. Currently the market share of alternatives and passives together to global AuM is 21%, these products together will represent 35% of assets managed by the industry by 2020.
What will be the role and scope of the asset management industry in the future?
The asset management industry has the opportunity to move centre-stage and get out of the shadow of its big brothers, the banking and insurance industry. The repositioning of the sector will be driven by four key elements.
First, regulatory developments will have a significant impact on the banking and insurance sectors by forcing them to abandon a few of their business lines, thrusting asset management into the centre of the industry with the development of new innovative products.
Second, as the population ages, retirement and healthcare are expected to become increasing urgent issues in the future. The dependency ratio worldwide is forecast to increase from 11.7% in 2010 to 25% in 2050. In this respect, asset managers should work at providing for tailored solutions to individuals and governments.
Third, asset managers will play a primary role in driving capital raising in order to meet the demand of growing urbanisation. The world urban population is expected to increase by 75% between 2010 and 2050. According to OECD, there will be a need for 40 trillion dollars of investment through 2030 to support growing urbanisation and infrastructure needs.
Last but not least, asset managers will be at the centre of efforts by Sovereign Wealth Funds to diversify their pools of assets.
How will these gamechangers impact the role of asset managers?
By 2020, a new breed of asset managers is expected to emerge. With the creation of new distribution hubs and new fund platforms, a greater focus will be placed on cost effectiveness. In addition, by 2020, asset managers will have fully entered the 21st century and embraced new technology as a way to drive customer engagement, collect data on clients and potential clients, portfolio handling and regulatory and tax reporting.
This ever-changing environment will also put greater emphasis on the need to attract new talents and recruit local teams in key emerging markets.
Finally, the asset management industry will have to communicate further with policy makers, the public and regulators on what are the added value and benefits of the industry to the real economy.
What are the key assets of Luxembourg in order to take advantage of those opportunities?
Luxembourg is very well positioned to take advantage of those opportunities. The asset management industry globally will have 101 trillions of assets by 2020. In the mutual fund industry, it will be around 41 trillion US dollars. Luxembourg having a global market share of 10% and assuming that Luxembourg will keep that market share, we are talking about 4.1 trillion dollars of assets by 2020.
As regards distribution, it is important that both Luxembourg and Europe as a whole continue their efforts to discuss the reciprocity of mutual funds and that the Grand-Duchy keep its leading position in fund distribution in Europe and at the forefront of distributing fund in other jurisdictions such as Latin America and Asia.