Asset management costs for all asset classes are expected to drop by 20% by 2025 as fees are increasingly based on performance, according to PwC.
In a new report – Asset and Wealth Management Revolution: Pressure on Profitability – the consultancy argued that asset managers must embrace new technologies in order to cushion decreasing income.
PwC based its forecast on an analysis of the annual reports of 64 asset managers with combined assets under management of €40trn.
The past five years were a golden period for large asset managers, PwC said, as margins rose by almost 16% and costs fell almost 16% relative to an income decline of almost 10%. Patrick Heisen, partner at PwC, said this was likely to reverse as fees came under more pressure.
“This is in part thanks to the regulation of the European Markets in Financial Instruments Directive (MiFID II), which has lead to greater cost transparency, but also to institutional investors becoming more cost-conscious,” he said.
Heisen added that the introduction of cheap passive investment products had accelerated this trend. “Although interest in active products is to remain, their added value must be better demonstrable to institutional investors,” he said.
PwC concluded that costs would come down across all asset classes, and would affect cheaper passive products and more expensive hedge funds. Fees for passive investments were expected to drop from 0.15% to 0.12%, PwC predicted, while costs for active equity mandates would fall from 0.54% to 0.44%