Amsterdam, 9 am and a windy, rainy November (people around here are used to that).
The 450 senior AWM professionals that gathered for the PwC AWM Conference 2019 feel the cold, but are excited about one of the most awaited industry gatherings each year. Friendly and talkative, they represent more than 45% of the world’s assets under management (AuM) valued at USD40+ trillion.
There is a recurrent question most financial services players ask: how to get prepared for a future that happens faster and faster? No, the clock hasn’t changed its pace, but technology developments and societal phenomena are.
Yes, the future of AWM is happening now.
The PwC AWM Conference 2019 is arguably one of the best tensiometers to feel the pulse of the industry. After all, who could be more genuine and well-founded to discuss the present and future of AWM than the actors that face its challenges every day?
This blog entry presents the takeaways of the event. Panels, sessions and deep dives spiced up with interesting talks over a cup of coffee have been our best source.
So now is the time to grab your hot coffee.
The future of AWM is happening now
This title has all the elements to be considered a clickbait, but it’s far from being one. To hold up our claim, we have put together 10 reflections on the present and future of the AWM industry. All of them are supported by the same pillars: business trust and the need for forging an intrapreneurship culture to embark on the journey of change.
1) AWM is living “a change of era” rather than an era of change
In the context of climate change, shifts in global economic power, demographic and social change, and technological breakthroughs, keynote speaker Gerard van Olphen, CEO of APG spoke about our times as being not merely in an era of change, but representing a change of era. He recognised that, on the one hand, customers are more critical and demand better quality and service, whereas on the other, they want to pay minimal fees to, rightly, maximise their pension benefits. Gerard works with a team managing over 21,000 employers with EUR 529 billion (August 2019) in pension assets, providing pensions for one in five families in the Netherlands.
2) Both the GenZ and the baby boomers are key to long-term resilience
The CEO panel, chaired by Olwyn Alexander (PwC Global Asset & Wealth Management Leader) touched on the necessity for asset managers to support greater retirement investment, while recognising the importance of improving investing literacy. Similarly, CFOs facing mounting margin pressure and increasingly challenging markets also align to this idea, one of the best ways to prepare their organisations for long-term resilience.
3) New investors care about sustainability, transparency and social media
In March 2018, the European Commission adopted an action plan to integrate Environmental, Social and Governance (ESG) considerations for sustainable growth. During the conference, a “deep dive” session explored the required changes in processes, transparency, ESG risks and impact measurement for products promoting ESG characteristics. The “Investors of tomorrow” are characterised by being technologically savvy, environmentally conscious and desiring a greater level of social media engagement. They will expect products to meet their environmental and social preferences and needs.
4) Brexit is not causing insomnia anymore
For all that has been debated and disputed over at least the past three and a half years, the panel on the “AWM industry beyond Brexit” looked at how asset management players are no longer waiting for an outcome in the UK to ensure that businesses will function effectively to serve investors needs.
5) AWM wants to get rid of the foot-laggard reputation in tech
The AWM industry has been consistently told it lags behind technological transformation and the embracement of behavioural trends. AWM professionals know it is time to get rid of that reputation.
Tangible advice came from the session on how technology is shaping the future of the global Asset Management industry. To operate more efficiently while keeping costs at a minimum, asset managers must digitise their operations. The emergence of digital technologies such as Artificial Intelligence and Machine Learning is a significant opportunity to streamline operations.
6) Upskill or… upskill!
Leaders preparing for tomorrow’s workforce face both the challenge of generating growth, and preparing for the new opportunities that the future will bring, often unknown. A question for the forward-thinking leader is “How can I deliver great performance while helping our people thrive?”
Despite the uncertainty, the AWM players want to articulate plans for their professionals to take on new and augmented roles, powered by technology. Apart from attracting and retaining the best talent upskilling the workforce for a digital world is a fundamental imperative in the AWM industry.
7) Trust and risk are the two sides of a coin called “future”
Co-creation sessions were also part of the conference agenda. Their focus was on sustainability of the AM industry, value for money and workforce of the future. There was audience consensus on the need for rebuilding trust in the industry to ensure that it addresses current investment needs and its future is sustainable.
Whereas being aligned with investor needs and meeting their expectations has to be the purpose of the industry, the 2019 PwC report (Asset and Wealth Management Revolution: Investor Perspectives – Rethinking purpose and performance) reveals misalignments.
The top 3 shared priorities of the surveyed 750 institutional investors and 10,000 retail investors from around the world were risk return, the macro economic and political environment, and Environmental, Social and Governance (ESG) considerations. This is understandable given investor needs for long-term financial security in the context of global climate change impact and geopolitical stresses.
Priorities of institutional and retail investors revealed differences in the importance they place on relationships and operations. For institutional investors operations are paramount, and relationships least so: for retail investors, it is the opposite. Retail investors are more concerned about their risk returns and uncontrollable global macro economic and political conditions, while all investors ranked Environmental, Social and Governance (ESG) as one of the top priorities, with the good news that asset managers are responding to this imperative.
Regionally, in North America and Europe, investors are most concerned about risk return, the macro economic and political environment followed by ESG considerations, raising the bar on how investing must consider non-financial information. For APAC, and the rest of the world, the outstanding concern is about the macro economic and political environment.
8) Alternatives are the alternative
As the 10-year bull run in listed equities shows signs of weakening, asset managers need to consider expanding into growth strategies to retain existing AuM and meet investor expectations. Private equity, real estate, infrastructure, credit and other alternative investments have a role to play. As stated by keynote speaker James Pomeroy, global economist from HSBC, growth will also come from the disrupted economy, but traditional financial measurements may no longer capture the data required for sound investment.
9) LatAm is set to be the next frontier
LatAm has the potential to become a growth destination. For example, the combined Latin America Institutional, HNWI, Mass Affluent and Retails segments will represent a USD 14,7 trillion investable market by 2025. LatAm Alternatives AuM should more than double between 2018 and 2025 achieving the expected mark of USD 575 billion; Infrastructure funds AuM will grow the fastest and Private Equity will remain the major asset class among alternatives.
10) The East is the yeast
Not to be overlooked are the titans of the Asian economies, namely China and India, emerging new tiger economies such as Vietnam, Kazakhstan, Sri Lanka, and the ASEAN stalwarts such as Malaysia, Thailand and Indonesia. As the AWM industry deepens in the region, it surfaces different investor classes and fund centres positioning themselves as access points. To know more about these trends, you can explore the PwC’s Asia-Pacific AWM 2025 report.
In closing, huge opportunities lie ahead for the AWM industry despite it faces the challenges of evolving technology, fee and margin pressure, sustainable investing and changing investor expectations.
The AWM players understand that alignment is important and transparency is a cornerstone to legitimate the credibility of their actions and deliver on clients ambitions.
What we think
Our clients want us to read the global shifts and provide long-term solutions and advice. They want to build security for their investors planning for retirement, and to sustain it for their descendents. Rather than fearing job-loss to automation and AI, these are the forces that we must harness to safeguard and grow assets. We must work hard to shape the industry, together.