Optimistic Forecasts for AUM growth in the Asset Management Industry are Overinflated, According to New Survey

• Bloomberg Intelligence and Simmons & Simmons survey finds widespread agreement that pressure on profitability will rise
• Managers expect a re-emergence of actively managed strategies and a change in favoured asset classes
• Despite Brexit, UK predicted to experience higher AUM growth than U.S. or Europe

Bloomberg Intelligence and Simmons & Simmons today launched their first ‘Asset Management Outlook to 2025’, a survey of nearly 2,000 global buy-side professionals that unveils asset managers’ expectations for financial performance and wellbeing across the sector over the next several years.

The survey reveals that global asset managers are relatively conservative in their predictions for AUM growth, expecting 21% growth to 2025. This demonstrates an expectation for strong, not stellar, growth that is in contrast to some more aggressive forecasts.

Perhaps surprisingly, given concerns over the possible impact of Brexit on British financial services, the UK is expected to experience 22% AUM growth – close to the APAC growth rate which is the highest across the globe – and ahead of both the U.S. and the rest of Europe.

Pressure on Profitability; the Rise of Actively Managed Strategies

Despite the relatively robust expectations for global top-line growth, respondents anticipate fee income to grow more slowly (only 8%) over the same period. This means that asset managers face a further fall in their fee margins – by 11% from their recent value in the period to 2025 – which will undoubtedly mount further pressure on profitability.

To combat this, asset managers expect to see a shift in investment style. The survey revealed that over a quarter (27%) of respondents expressed enthusiasm to expand offerings into alternative investment styles in a bid to capture higher fees and increase overall proceeds. Similarly, almost a fifth (19%) of traditional fund managers cited a move to actively managed strategies (with their promise of higher fees) as their most likely change, after several years of losing investors to cheaper, passive alternatives.

The Rise of Active ETFs

Given the predicted resurgence of active management, it’s interesting to consider that 13% of respondents expect to increase their allocations to ETFs – the second most likely increase in asset class. These results indicate that the search for lower cost but higher margin business, combined with the expected move to more quant-based strategies, may have produced a new era of active management using ETFs for traditional fund managers.

Shifting Asset Classes

All respondents also expect to see a change in the asset classes that are favoured over the coming years, driven by both the evolving macroeconomic environment and the preferences of different demographics.  For instance, traditional fund managers expect to move from interest-rate sensitive asset classes, such as Sovereign and Corporate Bonds, into Equities and Infrastructure. Similarly, alternative managers anticipate a move from CLOs, Loans, Distressed Debt and Private Real Estate into Infrastructure and ESG and Impact investing.

Sarah Jane Mahmud, a Senior Regulatory Analyst at Bloomberg Intelligence, says “This survey demonstrates that asset managers recognise that it will be challenging to maintain AUM, particularly in light of regulatory reform and supervisory scrutiny. Their response to those challenges will dictate the evolution of the industry– so it’s clear that this will be an extremely influential period”.

Colin Leaver, Head of Asset Management and Investment Funds at Simmons & Simmons, said “The breadth of the feedback and seniority of the respondents provides a real insight into the future of the asset management sector over the next seven years, against a background of continued change and an ever-more demanding investor base.  It’s clear that managers seeking to address these challenges will need to think differently to succeed, through diversification of their businesses and investor offerings coupled with a keen focus on fee margin.”

Notes to Editor

Bloomberg, in partnership with Simmons & Simmons, conducted a joint survey of nearly 2,000 global buy-side professionals that unveils asset managers’ expectations for financial performance and wellbeing across the sector over the next several years. For this report on the survey’s findings, Simmons & Simmons provided the analysis with Sarah Jane Mahmud, Senior Regulatory Analyst at Bloomberg Intelligence, contributing the regulatory analysis.

Media Contacts

Anna Schoeffler, +44-203-525-0776, aschoeffler1@bloomberg.net

About Bloomberg Intelligence

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About Simmons & Simmons

We are a leading international law firm with around 280 partners and 1300 staff working in Asia, Europe and the Middle East across 22 offices in 19 countries. Our industry sectors are: Asset Management & Investment Funds, Financial Institutions, Life Sciences and Telecoms, Media & Technology (TMT).

Simmons & Simmons has a highly specialised global asset management and investment funds team. The firm advises on the full range of legal and regulatory issues for institutional and alternative asset management firms internationally, and are recognised by the legal directories and the industry as being one of the leading firms in the sector. Our Asset Management practice is recognised across the globe and has received a number of recent awards, including, Best Onshore Law Firm and highly commended for Hedge Fund Start-ups at the HFM European Hedge Fund Services Awards 2018, China Asset Management Association of Hong Kong Best Legal advisor 2018, Best Regulatory Practice at the Hedge Fund Journal Awards 2019, 2018, 2017 and 2016, Funds Legal Advisor of the Year at the Private Equity Africa Awards 2018 Best Onshore Law Firm at the HFM Asia Hedge Fund Services Awards 2017 and Best Thought Leadership Paper for HyperFinance – Investment Week 2017

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