As the global economy strives to recover from the fangs of the Covid-19 pandemic, most industries are expected to experience massive expansions due to increased investments. One of them is Global Assets under Management (AuM), which is expected to hit about $147 trillion by 2025.
According to a report from PwC, the AuM industry is likely to experience a growth of 5.6% per annum from its current $110 trillion level to $147 trillion in 2025. However, this estimation is on the optimistic end of projections from the PwC’s Asset and Wealth Management Research Center. The research center used three scenarios to give its estimations.
In the first scenario or the best case, the report showed that the global economy would see a rapid recovery starting in the Q4 of 2020. This is, however, possible if there is increased fiscal stimulus that revitalizes economies and boosts investors’ confidence.
In the second scenario, or the base (most probable case), the world will see a sustained pandemic hold off economic recovery until mid-2021. Global Asset under Management (AuM) growth would also drop to a CAGR of 4.4% to reach $139 trillion in 2025.
The worst-case scenario of PwC’s report showed that there would be a double-dip recession amid further lockdowns and delayed vaccination. This would result in economic recovery starting at the end of 2021, which will further drop the AuM’s growth to 3.1% CAGR to reach $131 trillion in 2025.
The AuM expansion, however, in all cases would be strongest in North America and fastest in Latin America and Asia-Pacific. The report also shows that asset managers are the only hope for the economic recovery and Environmental, Social, and Governance (ESG) goals through their investments.
The PwC further indicates that non-bank lending, which now stands at $41 trillion, exceeds bank lending in advanced economies. This is because continued low-interest rates and higher capital adequacy ratios have put pressure on banks' lending ability. This opens more opportunities for non-bank facilities to finance promising businesses with limited access to mainstream funding. They also achieve superior fund returns as alternative capital providers.
Assets and wealth management firms have also seized more opportunities to fill the ever-growing gap in infrastructure development from governments. They can now refurbish roads, airports, hospitals, and even develop 5G and renewable energy. As a result, this infrastructure fund from AuM is expected to double by 2025.
PwC Global Asset and Wealth Management leader, Olwyn Alexander, said that assets and wealth management firms need to channel capital and target investment opportunities to help in economic recovery. He also emphasized the importance of understanding the power of the AuM industry in influencing the future.
More investors also have their expectations in asset managers to make ESG issues the core of their investment strategy. Of course, ESG- aligned returns are as important as financial returns, and anybody thinking about investing in asset and wealth management should look for firms that deliver both social and financial returns. Besides, ESG-aligned funds are not underperformers since the PwC report shows that ESG-aligned funds cumulatively outperformed their traditional competitors by 9% from 2010 to 2019.
(Written and edited by: Jonathan Davies - Finance editor)