Asset managers have significantly underperformed over the past five years. The top 10 listed asset managers have appreciated by 10% p.a., on average, over this period compared to the S&P 500 which posted a return of over 20% p.a.
We highlight five key trends to watch in 2022:
Trend # 1: Industry profit pools remain stable as cost reduction measures late fee compression (despite growth in assets under management)
Profit pools for the global asset management industry have remained stable recently despite healthy organic flows and growth in assets under management thanks to strong market performance. Industry costs have increased at a faster rate than revenues due to expense pressure and a shift of assets from assets to liabilities. We expect this trend to continue as the industry has struggled to aggressively cut costs despite industry consolidation.
Trend # 2: Asset owners are likely to continue to allocate more assets to passive and private markets
Global industry assets under management are expected to continue to accelerate the transition to passive assets on the one hand and private markets on the other, as asset owners strategically allocate investments to get the most benefit. asset managers. The alternatives present the most attractive income opportunity for asset managers, with its share in the sector’s income pool increasing from 42% in 2020 to 46% in 2025. The share of income from liabilities is expected to remain stable despite significant increases in AuM as fees remain unchanged. depressed.
Trend # 3: Fixed income could see a turnaround in 2022 as global central banks normalize policy
Fixed-income investors had a difficult 2021 as excess liquidity from central banks pushed real yields deeper into negative territory. We expect the fixed income market to recover in 2022 as global central banks normalize their policies and yields and credit spreads improve.
Trend # 4: Emerging Market Equities Outperform Developed Market Equities
Developed market equities outperformed emerging market equities in 2021. The underperformance of emerging markets is mainly due to the poor performance of Chinese equities due to the regulatory crackdown on internet companies and setbacks in the Chinese real estate industry. We expect this trend to reverse in the future as Chinese equities present an attractive opportunity from a valuation perspective. However, investing in Chinese equities remains a challenge for global investors due to limited coverage and research quality, high costs of a skilled talent pool, and language constraints to cover these markets from the US. global financial centers.
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