Conference Presentation, Panel, Fireside Chat
Asset Management Outlook
- Global assets under management (AUM) are projected to increase from $85 trillion to $145 trillion by 2025, driven significantly by retail, ETF, and alternative asset growth, including real estate.
- Passive management is expected to continue outpacing active management, though the passive share of global assets is predicted to remain below 80%, while active management will see a bifurcation between "true alpha" and risk premium collection strategies.
- Technology and a low-rate environment are anticipated to empower asset allocators to rethink deployment of approximately $140 trillion in assets, with market valuations of alternatives and long-only public securities converging at a PE of 11.
- The industry will likely witness consolidation as small, long-only public securities firms face challenges, while middle-market firms struggle with the capital required for regulation and technology, prompting major firms to expand across all asset classes.
- Over 50% of new money investments are forecast to flow into private or illiquid assets, with companies increasingly moving to the private sector or staying private longer to avoid quarterly reporting pressures, particularly following an unprecedented volume of IPOs to private equity in 2018.
- Regulatory changes in credit and a search for a better balance between private and public markets are expected to drive capital into private markets, while the industry anticipates a continued trend of blending alternatives and public securities to meet long-term liabilities.
- Digitalization efforts, such as PIMCO's initiative targeting $550 million in cost savings by 2020, and blockchain adoption to reduce settlement times and liquidity mismatches, will complement the broader shift toward data-rich decision-making frameworks over the coming decades.
- Artificial intelligence and machine learning will enhance investment processes in real estate, equities, and fixed income, though the industry will remain in a "man and machine" environment for years, with a specific transition from computer-assisted to human-assisted computer trading.
- Investors are cautioned against the risks of over-fitting and relying on spurious correlations if machine learning hype leads to sloppy research, with no dramatic AI applications expected to replace humans in the immediate future.
- ESG factors, particularly the social component, are expected to become critically important for asset allocation and external manager selection, with integration into the investment risk framework viewed as an essential industry milestone.
- A demographic shift in Canada, where the population over 60 exceeds those under 20, is predicted to create severe talent attraction and retention challenges for the asset management industry over the next 10 to 15 years, with a "crunch" expected within two to five years.
- The U.S. buy side may benefit from sell-side downsizing, yet many public plans will struggle to attract high-quality staff, while Canada is expected to serve as a governance and talent model, requiring the industry to recruit from broader, more diverse pools including IT specialists and non-U.S. talent.
- Strategic outlooks for specific entities include MetLife expecting opportunities driven by cross-asset customer needs, and Ontario Teachers' Pension Plan continuing its long-term mandate with growth in global tech investments and a focus on ESG due to stakeholder feedback.
- Specific operational outlooks indicate that Two Sigma's optimization solutions will remain well-received, the retirement of MetLife's CFO will not alter its CEO succession path, and an unprecedented number of public companies are expected to go private in 2018.