The Global Fund Management Outlook Is Positive, With Emerging Markets Leading the Way
The expansion of the middle class in countries such as India and China, and the development of new technology are creating opportunities for asset managers
August 2018, London. Global assets under management (AUM) will continue to rise over the next five years, with those in Asia ex-Japan and Latin America growing at a far more rapid pace than those in other regions, according to Cerulli Associates’ Global Markets 2018: Breaking Down Barriers as Opportunities Evolve report. In emerging markets, rising incomes, the expansion of the middle class, and improved financial literacy will fuel demand. In developed economies, access to defined contribution (DC) pension schemes and an increased focus on retirement savings will underpin mutual fund growth.
The marked difference in the estimated CAGRs of AUM in the U.S. (4.8%) and Asia ex-Japan (15.0%) is one of several differences between the industry’s mature and developing markets. However, developed and emerging markets do have things in common. For example, in all regions, regulation is driving down fees and pushing flows into passive funds. In the institutional space, legislation aimed at shifting the responsibility for retirement income from the state to individuals is feeding flows into DC schemes.
Global mutual fund AUM as a percentage of household financial assets in China jumped from 13.1% in 2016 to 16.0% in 2017. Together with India, China represents a massive growth opportunity for the asset management industry. “The expanding middle class and increasing number of high-net-worth individuals in China and India will help ensure robust AUM growth in both countries,” says André Schnurrenberger, managing director, Europe at Cerulli Associates. “Over the past four years, India has recorded AUM growth of more than 20%, achieved through a combination of new flows—particularly into equity and balanced funds—and market performance.”
China’s household financial assets showed steady growth in 2017, at 10.9% year-on-year, and the mutual fund penetration rate of 16.0% was a five-year high. Although managers face challenges in both jurisdictions, they are manageable. Maturing investment behavior in India and aspects of regulatory change in China are working in favor of the respective countries’ markets.
In addition, asset managers in both developed and developing markets are embracing digital technology as a way to serve investors—and attract new ones. Justina Deveikyte, associate director of European institutional research at Cerulli, says, “With downward pressure on fees—and the accompanying migration from active to passive—set to persist, managers in developed markets are turning to technology to improve operational efficiency.” Managers in developing markets are also using technology, but, unlike their counterparts in developed markets, their primary intention is to attract clients new to investing in funds.
The enhanced use of data and technology is enabling managers to identify the clients their products are best suited to and to propose fresh investment ideas, as well as generate alpha. Access to data is also changing the way asset managers integrate environmental, social, and governance (ESG) factors, enabling new investment themes. By using artificial intelligence and big data, managers can gather more frequent and granular data and perform real-time analysis of ESG investments.
This and several other new findings make up Cerulli Associates’ Global Markets 2018 report.
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