US Stock Index – Wall Street
Currently, a series of crises are impacting the global economy. Under the weight of economic pressure, many industries around the world are facing storm-like changes.
This crisis, which started with COVID-19 and ended with the fallout from the war in Ukraine, has changed the plans of many companies, especially small and medium-sized ones, and created more obstacles to continue working as normal, including asset managers, given the current series of Variables, some of which are subject to various shocks.
Given these pressures, there is still an opportunity for large groups to dominate and acquire smaller peers, opening the way for new mergers in different industries.
In this context, according to the above data, the asset management industry is likely to undergo a major consolidation in the next four years, and “one sixth of the companies” may disappear due to the combination of the market. Volatility, high interest rates and fee pressures companies get.
modern investigation
In this context, the British “Financial Times” quoted in a report a survey conducted by PricewaterhouseCoopers (PwC, one of the world’s largest professional services companies, one of the Big Four auditors, and headquartered in London, along with Deloitte) As a result, the survey conducted by the firm (including 500 asset managers and institutional investors) is as follows:
- One in six asset management groups ‘will disappear by 2027’
- 16% of liquid asset and wealth management firms will fail or be acquired by larger groups.
- About three-quarters of asset managers are considering an “acquisition or merger” with a competitor.
- The survey attributed this to “business models under pressure in a difficult market”.
In this context, Jonathan Rowland, a British real estate asset expert, said in an exclusive interview with Arab Economic Sky News that market factors will enhance the trend of “consolidation” among asset management companies to overcome the challenges that have occurred in this field.
“Of course, those with more resources can eat up the competition!” he added.
It is believed that the pressure on central banks to lower inflation is felt to be increasing on the shoulders of asset managers, given market conditions and indicators related to the extent of the challenge, mainly posed by high inflation, as well as interest rates rising against the backdrop of the measures taken Larger, resulting in a series of variables.
bleak outlook
This is in line with what Olwen Alexander, Global Asset and Wealth Management Director at PwC, said, “Top asset managers are getting bigger…there’s a lot of cost pressure on the industry right now , in addition to pressure on margins, forcing managers to look at their quality, especially senior managers in the industry, and their ability to do so in addition to maintaining profit margins.”
- The bleak outlook comes as fund managers suffer their biggest asset drawdown in a decade.
- According to PricewaterhouseCoopers (PwC), between 2021 and 2022, assets under management of asset managers fell by 10%, from $127.5 trillion to $115.1 trillion, as market declines across asset classes were hit by management fees. and performance hits.
This means that market downturns across asset classes have had a negative impact on asset managers’ fees for asset management services and fees related to the performance of trading assets.
That is, when the value of assets in the market declines, it results in less money being traded by asset managers. As a result, asset managers’ revenues and profitability are affected, so they may receive fewer fees from clients.
difficulties and failures
Returning to Rowland’s statement on the Sky News Arab Economy website, he said that “asset managers are facing difficulties in their jobs and they are finding it difficult to keep up with payments. This means managers will be doing more work with less income.” A lot of work because the default happened on the most difficult day in the environment.”
Managers surveyed by PwC cited some of the challenges they face against this backdrop, the most important of which (inflation, market volatility and interest rates), as drivers behind the decline, according to the UK newspaper.
Less than half expect the assets they manage to be more exposed to environmental risks and geopolitics.
The global asset management industry has been churning out deals in response to these pressures and trying to tap new clients or new areas of growth with a string of high-profile mergers and acquisitions.
“Asset managers will have a hard time getting over this phase, especially because they are working more cautiously than ever before,” the British expert said, emphasizing, “If we don’t get over the inflation and interest rate problems that are spreading across Europe, we will definitely We really saw more negative impacts in the last quarter of the year.”
- Last month, Franklin Templeton, a California-based global investment firm founded in 1947, agreed to buy a company
- The California-based company has agreed to buy rival Putnam Investments for more than $1 billion, as the asset manager continues to expand into alternative products and retirement plans.
- Brookfield Asset Management, the Toronto-based $834 billion asset manager, predicted in May that tough economic conditions “will force asset managers to consolidate into as many as 10 industry-leading firms.”
- Similar trends are emerging in wealth management. In April, wealth manager Rathbones bought rival Investec Wealth & Investment for £839m, creating a firm with over £100bn in assets under management.
new algorithm
Chris Woodhouse, chief executive of wealth manager Evelyn Partners, which also bought a smaller advisory firm this year, was quoted in the UK newspaper as saying: “I think ultimately the UK will have a handful of wealth managers. managing more than £100 billion”.
The top 10 traditional asset managers “will control half of all assets going into mutual funds by 2027, up from 42.5% in 2020,” the report said.
Additionally, PwC predicts that automated advice using algorithms to provide financial services will grow to $6 trillion by 2027 as it provides low-cost, personalized advice.
Here is an example. In 2021, GB acquired Nutmeg, a British digital wealth management company. Against this backdrop, the survey found that 90% of managers believe generative AI technologies will enhance returns and attract younger investors, whose importance is expected to rise as they inherit $68 trillion from the previous generation will increase.
Artificial intelligence is playing an evolving role in the industry with the emergence of a new generation of trading algorithms utilizing artificial intelligence technology. act as independent agent.
U.S. Treasury bonds
Muhammad Chaudhry, a professor of financial risk management at McGill State University in Montreal, said in an exclusive statement to Sky News Arab Economics: The two-year return offered by the U.S. Treasury Department is about 5%, and the maturity date is about 5%. With maximum capital security and currency, with the potential for higher returns over the holding period (when rates fall the following year).
The U.S. Treasury also offers returns in excess of 4% over the short term, making investing in money markets more attractive than venture capital and asset classes.
Commodities and equities appear to have limited upside due to weak economic growth and the possibility, albeit modest, of a recession. That’s especially true given the stock’s already high valuations.
“Alternative investments also don’t appear to be paying off well, and cryptocurrencies are also on shaky ground due to recent failures and pending regulation,” he said.
The growth of telecommuting and e-commerce, along with high financing costs (due to rising interest rates), is challenging office and retail commercial real estate.
The IPO market has effectively dried up, and the availability of capital for venture capital and private equity investments will remain constrained for the foreseeable future.
As a result, financial risk management experts say fees will and will continue to come under pressure as fintech and artificial intelligence lower the barriers to entry into the asset management business while lowering the cost for investors to invest in research and direct transactions. Whether from an institution or an individual.
Hence, “with all the headwinds mentioned above, it will be difficult for the asset management business to attract capital and deliver better returns due to the multiplicity of risks,” Chowdhury said.