Asset managers bullish on industry: PwC

Investors are finally getting the message that they need to save more for their retirement, making an aging population less of a drag and more of a growth driver for the asset management industry, according to a survey of CEOs in the business.

The PwC survey found that 68% of CEOs at asset management firms are “very confident” about their companies’ growth prospects over the next three years.

“Much of this confidence stems from the huge market potential opened up by an aging population, not just in the developed world but in Asia as well,” says Raj Kothari, national asset management practice leader for PwC.

“While this potential has been evident for some time, the financial crisis has created further opportunities for asset managers by accelerating the pressure on defined benefit pension plans and greater strains on public pension plan provisions. The result is increasing uncertainty over retirement income and greater readiness to put money aside.”

There is a risk to the business, however, in that investors have become more risk averse due to repeated economic shocks already experienced in the 21st century. Investors will demand funds with a reasonably secure income yield, or else they may place more capital in deposit accounts, preferring safety to a higher yield.

With increased savings come increased asset bases for managers, and presumably higher profits. But this growth will fuel even fiercer competition in the industry, according to Kothari.

“Canadian firms will have to be more vigilant in reducing costs, increasing their efficiencies and adjusting their product lines,” he says. “At the same time, investors will be looking for increased transparency and more frequent reporting while regulators are placing more pressure on managers to provide this transparency.”

Asset management CEOs said they were increasing their investment in developing new products and improved technology in order to reduce costs and enhance customer relations. In fact, 80% said innovation would deliver higher revenues over the next three years.

Three-quarters of CEOs said consumers would focus more on price and value for their money in selecting their investments. As a result, almost 70% either have started a cost-reduction initiative over the past 12 months or are continuing an existing plan.

In Canada, Kothari predicts further consolidation between medium-size players, as firms seek to achieve scale, specialization and cost reduction.

One means of cutting costs is outsourcing some business processes, and 42% said they have done so in the past year. Another 29% plan to do so over the coming year.

The survey also found that emerging markets are increasingly important to asset managers—so much so that Singapore is expected to surpass London and Boston, becoming the second-largest asset management hub (after New York) by 2025. Thirty percent of CEOs said they were planning a strategic acquisition in Asia or Latin America, while 40% were looking to Eastern Europe.

As growth picks up in the sector, so will the competition for talent, and 65% of asset management CEOs say they are concerned about the depth of the talent pool.

The global survey included 1,200 business leaders, 31 of whom lead asset management firms. The full report is available on the PwC website.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.