Get set for 2021: Leading the recovery
Having weathered 2020, the big question is what comes next for the asset and wealth management (AWM) industry? Even when the health crisis is finally behind us, we won’t be going back to the world as it was. Yet with change, comes opportunity.
Looking ahead to 2021 and beyond, much clearly hinges on how quickly economies can bounce back. Our latest projections for growth in global assets under management (AuM) in 2025 reveal a $16 trillion gap between the rapid economic recovery best case scenario and the double dip worst case (for all our projections including breakdowns by region and asset allocation see our new report, AWM Revolution: The power to shape the future).
Funding the future
With over $110 trillion in AuM, the AWM industry is uniquely placed to help lift economies out of recession and boost fund returns in the process. This includes an increasing role for alternatives funds in financing key engines of the recovery such as infrastructure development and funding for growth businesses.
Providing for the future
Under our projections, shifts in investment allocation will also gather pace. Key drivers include the need to boost yields and meet savings goals in an ultra-low interest rate environment. Actively managed funds will still make up the biggest share of AuM. But faster growing alternatives are taking on much of the alpha mantle, while passives assume the beta.
AWM’s critical role in providing for the future is highlighted by the nearly $50 trillion in pension assets it now manages. Both a step up in financial education and closer collaboration with governments in areas such as auto-enrolment will be needed to encourage people to save more.
Embracing ESG as the future
Environmental, social and governance’s (ESG) move to the centre of the strategic agenda is a clear sign of how far and how fast the world has changed in the wake of COVID-19.
Clearly, ESG is a bigger priority for some investors than others. But underplaying the importance of ESG risks missing out on arguably the most significant commercial development in money management since the creation of exchange-traded funds.
Always-on relationship
The other big game-changer is the acceleration in digital transformation. AWM organisations with advanced digital analysis and omnichannel engagement capabilities have been able to create a compelling customer experience in the absence of face-to-face interaction. Others have been scrambling to catch up.
This digital shift will continue to gather pace as digital platforms evolve to offer lifetime wellness solutions. This might be a day-to-day spending analysis and money management as well as help with savings and retirement solutions. By creating this always-on relationship, your business can develop richer and more revealing insights into financial behaviour and needs, which you can turn into more precisely tailored products. This is the equivalent of a high-net-worth wealth offering for a mass affluent market.
Pressure for consolidation
Amidst this upheaval, the perennial challenges of scale, cost and efficiency haven’t gone away.
Alongside digitisation, 2021 is likely to see further pressure for consolidation, much of it coming from activist investors. What’s clear is that scale alone isn’t enough – a deals-led recovery strategy should also look closely at augmenting talent and technology. Moreover, acquisition doesn’t necessarily require a costly deal. Borrowing critical capabilities or bringing in a target team can be much less expensive, while still potentially transformational.
Urgent repairs
With so much change on so many fronts, how can your business get ahead of the curve? Our AWM Revolution: The power to shape the future report outlines the strategic rethink and operational reconfiguration needed to meet investor and wider stakeholder expectations. But before you can move forward, it’s important to repair what’s not working now. These repairs will form an important part of the agenda for 2021:
1/ Calibrate quickly with clients
Ask yourself what clients want and how you can move quickly to deliver. For example, if you’re facing questions over value for money, then performance-based fees or increasing allocation to high-yield alternatives could be the answer.
2/ Sharpen digital connectivity
Look to vendors and fintech innovators to help you connect with clients and develop interactive reporting and faster response to enquiries.
3/ Clear out the legacy
Implement fast and effective ways to drop the deadweight of legacy systems and lay the foundation for a more digitally enabled business. For example, applying robotic process automation to routine tasks and moving to a software-as-a-service (SaaS) cloud platform.
4/ Rationalise portfolios
Re-evaluate portfolios and returns before closing or merging unprofitable funds. This will enhance product strength, marketability and profit potential.
5/ Outsource your non core operations
If you haven’t already, outsource your non core operations and refocus on your core competencies. As the sophistication of service providers increases, there are opportunities to outsource higher-value operations, too, such as investment modelling, transaction processing, compliance reporting, tax and legal.
Foundations for transformation
Clearly, basic repairs can only get you to the competitive baseline. Meeting your new objectives over the long-term is likely to require a fundamental overhaul of investment philosophy, investment execution and relevant capabilities. It’s also important to report on your objectives and performance in areas such as ESG. But with these urgent repairs in place, you can create a vision for the future and move on to the deeper seated changes from a position of strength.
? 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with a professional advisor.