Nearly half of net new industry assets will be held into passively managed portfolios by 2021, research by Deloitte consultancy firm Casey Quirk finds.
As scrutiny over poorly actively managed funds continues, the consultancy firm says in the next five years 43 per cent of the industry’s new assets will fuel passive managed strategies.
Skepticism over active managers will dampen their organic growth.
The white paper explains the dramatic uptake of passive management saying: “Several forces fuel this skepticism [against active funds], including the relatively unimpressive performance of active managers net of fees in recent years; wider information availability, which makes alpha increasingly elusive; and increasing press scrutiny regarding value for money in asset management.”
The report says investors who will mostly benefit from this shift will be institutions with shrinking asset bases.
In fact, it says the highest index product growth, will come from direct investors who purchase ETFs without advice or through robo-advice firms or beta allocators, which is “a growing group of investors served by intermediaries that allocate portfolios across a wide range of betas,” the report says.
It adds: “Buyers will argue that active asset management remains essential but has been monetised incorrectly.”
However, some of the flows (17.5 per cent) into passively-managed products will still come from traditional portfolio construction providers, including multi-asset funds, the report says.
Meanwhile, Casey Quirk argues the industry’s annual organic growth will slow to less than 1 per cent by 2021.
This data comes as new assets acquisition has already slowed from an average of 3.5 per cent annually worldwide before the financial crisis to 1.7 percent from 2009 to 2014.
In addition, of all the markets globally, China’s asset management market will likely grow as fast as the rest of the world combined, despite fees remaining steady, according to the firm’s analysis.
Overall, the report predicts median profit margins for asset managers to drop from 34 per cent to 28 per cent in five years.
To improve margins, the study claims asset managers and advisers will need to cut their fees to maintain the same long-term ratio of fees to returns, as it has floated around 25 per cent historically, and had to face a near-zero interest rates and slowdown in growth.
Ben Phillips, a principal at Casey Quirk, says: “Asset managers face the strongest headwinds yet as an industry.
“Nevertheless, one-third of asset managers are still growing their market share by embracing new, differentiated strategies that reflect changing realities, as well as supporting products and services that appeal to skeptical investors.”