The US investment fund market will represent less than half of global assets under management by 2020. Also, tapping into the high growth Asian markets will require a bold digital strategy. Just two of the take-aways from day one of the Alfi Global Distribution Conference on 19 September 2017. And yes, there was some Brexit.
Photo: Marion Dessard
Global assets under management are set to hit $100trn by 2020, and around this time, the US market will start to represent less than half of the total for the first time. Barbara Wall, managing director of the consultants Cerulli Associates made this prediction to the conference, adding that if asset managers are not planning to look into digitalisation soon they risk falling behind “very rapidly”.
She cited one of their recent surveys of around 1,000 Asian investors. No fewer than 54% said they would be willing to use robo-advisors in the future, with 17% saying they had already used these algorithm-powered applications to help them construct an investment portfolio.
She said there would also be other opportunities for international funds. There are signs that independent financial advisors and platforms are breaking the banks’ traditional distribution stranglehold in places like South Korea. However, in other countries, some asset managers have been unable to disrupt home bias, and are pulling out of retail markets. Hong Kong remains the best market for international business, with 38% of money outsourced to external managers. This figure should grow to 42% by the end of the decade.
Nevertheless, Wall underlined that the US will remain the largest single market for some time to come. But change is afoot. She expects to see retail products become more significant as money is diverted from defined benefit pensions. She also talked of the “inexorable rise of passives”. Last year there were roughly $2.5trn ETFs and tracker funds in the US; over 6% of the total market. This remains a largely domestically focused market, with only 16.5% international exposure in the US, compared to around 64% in Switzerland. However, Wall sees a change here as investors seek greater diversification.
Europe was “tough” last year on 4.5% growth, the lowest since 2011. However, ETFs have grown here too, with a 100% increase in assets since 2012. The figures also showed 3rd party managers losing market share in three of the seven markets Ceruli investigated. However, most cross border managers surveyed were relaxed that MiFID II would not have a major effect on the 3rd party fund model, with only 4% saying change would be “significant”.
Wall was concerned that this view could be over-optimistic, because barriers to entry are increasing. Again, managers will start to look at robo-advice and this could have an impact. Around a third of cross border managers said robo-advice would have “significant” market share in 10 years time in continental Europe.
Wall expects turbulence in Latin America to be short term. There have been issues over fees and performance in Chile, Mexico and elsewhere, but she expects these problems to be overcome in the longer term.
Gramegna: Ucits, Brexit
Back in Luxembourg, growth has been decent so far this year, with assets under management growing 6% in the first half, nearly touching a total of €4trn. Pierre Gramegna, the finance minister, highlighted next year’s 30th anniversary of the Ucits directive. “This has been a great success, but like many things that work well, there is a tendency to take this for granted,” he commented in his address to the Alfi conference. He underlined his commitment to protect and build on these gains.
On Brexit Gramegna commented that “a lot has been said, but little done” and he hoped that the UK prime minister’s keynote speech this week will give greater clarity. Whatever the outcome, said it “was in no one’s interest that the UK should become isolated in the Atlantic”. He pointed out that London is “firmly connected” within the European economy, and that he is confident these connections can be built upon or adapted in the future.