Diversification demands drive managers to build out asset classes
A PwC report suggests industry players are accelerating plans to build out their multi-asset solutions to capitalise on opportunities in growing investor segments, supported by mergers and strategic partnerships.
The Asset and Wealth Management: Top Ten Trends report, which outlined key trends observed in the wealth and asset management space, highlighted a marked rise in multi-asset approaches as firms cater to an appetite for diversification and customisation in portfolios.
For large private asset managers, the shift comes from a desire to broaden their investor base, which has traditionally been institutional investors like sovereign wealth funds and pension funds, into high-net-worth (HNW) individuals or mass affluent.
Some 690,000 individuals are now classified as HNW, Praemium and Investment Trends found, representing an 8.7 per cent rise from 635,000 in 2023. Collectively, these investors manage $3.4 trillion in investable assets, up from $2.98 trillion in the previous year.
“There is a move to broaden the investor base and explore how best to capitalise on opportunities in other segments, such as investors in the mass affluent, HNWI and UHNWI space,” the report outlined.
“Tapping into these investor groups would enable alternative asset managers to access new sources of capital and fundraising options – something that is a constant as managers look to set up new funds and grow.”
Research by Praemium earlier this year found more than 17 per cent of HNW investors are now diversifying their portfolios with alternative assets. This figure is higher than any other investor segment, with just 10 per cent of core affluent investors and 6 per cent of mass affluent investors holding alternatives.
Another key development, according to PwC, is the reshaping of distribution as new players emerge.
“Shifts in investor demographics and technological innovations are prompting a revaluation of how products and services are offered. This evolution has introduced a new breed of technology-driven players, such as digital wealth advisers, platforms, and robo-advisers, bringing new value propositions to the market,” it said.
The findings echo research by Morningstar in October that stated active asset managers need to diversify their product ranges if they wish to compete with passive players.
“We believe traditional active managers’ competitive position is weakening overall. However, they can partially mitigate share losses to ETFs and industry funds by diversifying into more niche or exotic products that are harder to replicate through passive options.
“Flow prospects are greater for other categories, such as private debt, private equity or systematic trend strategies, but it is difficult to build up such expertise.”
Private markets
For the traditional asset managers, they have broadened their asset class offering with private market capabilities, utilising strategic partnerships and acquisition activity to “fill gaps” and assemble multi-asset businesses.
In October, investment giant BlackRock announced its acquisition of Global Infrastructure Partners (GIP), while Janus Henderson made two alternative acquisitions this year, with a majority stake in US-based global private credit manager Victory Park Capital and National Bank of Kuwait’s emerging markets private investments team, NBK Capital Partners.
GQG also formed its Private Capital Solutions division after acquiring minority interests in three US-based firms: Avante Capital Partners, Proterra Investment Partners, and Cordillera Investment Partners.
“Besides growth ambitions, becoming a diversified group is an obvious choice for many large traditional asset managers as they continue to face intense fee and margin pressure on mutual funds and ETFs,” PwC noted.
“There are clear synergies between asset classes. For example, a manager with expertise in data centres may also have important insights into energy sources and transitions, which also informs related private credit opportunities. Similarly, there may be overlaps between areas of commercial real estate and private credit.”
According to the report, a successful multi-asset group will be able to extend its brand and capabilities across private and public markets, seeking to add value through a portfolio approach that exceeds the sum of its parts.
“Private markets, which accounted for around US$250 billion in revenue in 2022, will drive 50 per cent of global revenues by 2027. Going forward, traditional asset managers are expected to increasingly explore and capitalise on the available opportunities in private markets,” it remarked.
It forecasts private assets to become accessible to a broader spectrum of investors in the years ahead, with greater interest from asset and wealth managers, technological innovations, and increased regulatory receptiveness proving supportive.
“This trend is already playing out in various jurisdictions as innovation and product structuring have provided private market assets an avenue to reach a larger base of investors.”
AUTHOR
Rhea Nath
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