Number of Asset Managers to Halve06.17.2014
KPMG expects the asset management industry to be bigger by 2030 but the number of firms in the market to halve.
Ian Smith, financial services strategy partner at KPMG, told Markets Media that asset management is relatively immature in financial services and has grown over the last 30 years by catering to a stable demographic of white male baby boomers. To achieve growth over the next 15 years the industry will have to meet the needs of a younger, more diverse, customer base including young people, women and consumers in developing markets.
In a new report, Investing in the Future, KPMG estimated that fund managers are currently only spending 16% of resources on marketing strategies tailored to younger investors.
The report said: “We believe the industry will be significantly larger and have a more important role to play in society than today. However, in order to be part of this, many investment managers will need to drastically change their value proposition to remain relevant.”
KPMG said the opportunity for non-traditional players, combined with continued pressure on margins and the search for capabilities, will kick-start a wave of mergers.
“We expect to see mass consolidation in the industry and predict that within 15 years there will be half the number of players currently in the market,” added Smith.
Smith said there is a tremendous opportunity for new entrants such as Apple, Google or Amazon who are increasingly trusted by the younger generation and have the technical ability to understand data and provide personalised products. “I do not expect them to become asset managers but to form partnerships in this space,” he added.
The report highlighted new entrants who are already combining technology, data, social networks and communities such as Wealthfront, an SEC-registered online financial advisor catering to Silicon Valley which only offers exchange-traded and index funds; Dataminr, which analyses tweets to predict events for financial and government sector clients and eToro,an online market for trading currencies, commodities, indices and stocks which allows investors to automatically copy the investment styles of other network members in real time.
The report also predicts that institutional investors are likely to change with sovereign wealth funds playing a larger role by 2030.
“Defined benefits providers will probably continue to decline and be replaced by new collective defined contribution schemes, new risk-sharing pensions or healthcare savings vehicles.” the report said. “The advent of megacities could also act as important force shaping the institutional client landscape.”
Other trends predicted in the report are the growth of socially responsible investing and asset classes such as real estate, private equity, infrastructure and even more esoteric investments becoming part of the mainstream retail industry by 2030.
There will also be new investment opportunities as economic expansion drives more resource- intensive consumption and greater resource insecurity in areas such as water, food and energy.
KPMG estimated that food production will need to rise 50% to feed a wealthier and more demanding global population while there will be a 40% shortfall between forecast water demand and available supply.
The report said: “The economic and social risks associated with scarcity are creating a range of interesting investment opportunities which many organizations have already incorporated into investment strategies.”
There will also be new investment opportunities due to urbanization and tendency for human populations to cluster in areas at risk of natural disasters and damage from floods, storms or earthquakes.
KPMG said: “From an investment management perspective, it also creates evident opportunities to invest in industries which are well-positioned to benefit from infrastructure and development projects.”
Last week Christian Dargnat, president of the European Fund and Asset Management Association said at the association’s annual general meeting that after the decreases in assets under management following the financial crisis, studies now predict a rise to $100 trillion by 2020, a compound growth rate of 6%.
EFAMA said in a statement that assets are rising but will be invested differently due to the fast growth of low cost beta and alternative solutions.
Dargnat said in a statement: “Over the course of the last year, we have helped the industry to confront, with some success, the three major challenges that I identified at our last AGM: the huge number of regulatory initiatives under way in Europe and also in the US; the lack of a level playing field for financial products and the erosion of profitability.”
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