Active management is not in a death spiral
Global assets are forecast to reach $112tn by 2020, with $74tn in active management
FTfm launches the “Chart to start the week” today, featuring the big themes facing the investment industry.
The series begins with a chart illustrating the scale of the asset management industry globally and the shifting balance between money that is run by traditional active managers and in index-tracking investments.
Assets managed in mutual funds, institutional mandates and so-called alternatives (hedge funds, private equity funds and infrastructure) stood at around $78.7tn at the end of 2015, according to PwC, the professional services provider.
This represents the universe of investments FTfm aims to cover. By 2020, global assets under management are expected to reach $112tn, an increase of 42 per cent.
Projected growth in investment assets is being driven by increases in population and life expectancy. The pool of savers is becoming larger, older and richer. Incomes are rising as economies expand, and wealth has grown substantially due to increases in the value of property, equities and bonds.
None of these trends — population, ageing, incomes, wealth — appears likely to go into reverse in the near future. As a result, some observers believe investment managers could be running as much as $400tn by the middle of the century.
But the industry’s tectonic plates are moving even as it grows in size. Widespread disappointment among investors with the poor performance and high fees of traditional active managers is driving the shift into low-cost index-tracking strategies.
PwC projects that passive assets under management will more than double, from $11.3tn in 2015 to $23.2tn by the end of 2020.
It is a common misconception that active management is in a death spiral. Instead, PwC forecasts that assets run by active managers will rise from $58.4tn in 2015 to $74tn by the end of 2020, a 26.7 per cent increase.
With future returns from publicM equity and bond markets widely expected to be weaker than those achieved historically, investors are hoping to boost their portfolios by increasing their allocations to alternative asset managers. Their assets are expected to increase 64 per cent to $14.8tn by 2020.