If a portfolio manager teleported from 2020 into 2030, they would most likely not recognise their industry.”

Asset managers will increasingly struggle to run global enterprises, as cross-border investments shrink, according to new research.

Globalization and cross-border M&A in the asset management industry will atrophy by 2030, with less than one-fifth of investment flows entering cross-border investments, according to research carried out by Indefi, a strategy advisor for asset managers. 

The new research entitled “The Future Is Now: Five Waves Reconfiguring Asset Management,” predicts that from now until 2030, domestic equity, fixed income and alternatives markets will garner nearly $20 trillion in net new money, almost four times more than the $4.5 trillion in net flows into international equity, fixed income and alternatives markets over the same period. Additionally, 85% of investments will be in local versus cross-border investments by 2030, versus 74% in 2021, a substantial shift. 

The new research defines and examines five secular trends that will vastly alter the asset management industry:

  • Individual investors will dominate
  • Globalization in asset management will shift to more domestic investments
  • Outcomes, including sustainability, will be more important than returns
  • An expanded investment toolkit will include private markets and cryptocurrency
  • Artificial intelligence will play a growing role in the investment business

Why will cross-border deals take a dive?

This trend also is fueled by a significant wave in asset management: the importance of the individual, not the institution.

According to Indefi, by 2030, retail investors will account for more than 61% of global assets under management, up from 52% in 2021. Institutional assets in meantime are slowly losing ground, from 31% in 2021 to a projected 26%, out of a total $175 trillion by 2030.

Similarly, by 2030, 67% of the revenues in the industry will come from retail investors, versus 61% in 2021. This shift is helping fuel deglobalization too as retail investments are typically more regulated than their institutional counterparts. With more money “staying home” and in retail vehicles, deglobalization will accelerate. 

The report said that perhaps the most profound change is the industry’s tempo and focus on retail: the source of
innovation, managers’ focus, even language, will all be oriented around how to better serve the individual, said the report.

“Historically standards were set at the institutional level and worked their way “down” to retail. This pyramid is in the process of inverting itself, with institutional following, not leading. ETFs have been an early example of this, with initial retail adoption followed by adoption at scale by institutions globally.

“In this environment, managers need to reassess who their real competition is: not the fund house next door, but rather any potential destination for individuals’ excess savings: bank deposit products, insurance, robo-type platforms, direct-lending platforms, and digital assets are all vying for the same dollar,” said the report.

Which markets will dominate net new investment flows in 2030?

China will provide nearly half (45%) of net new investment flows for asset managers by 2030 versus 29% of the total from the US and will comprise almost one-fifth of the overall assets in the asset management industry by 2030, according to the research findings.

While the US will continue to be the largest market in terms of assets under management (AUM), China will account for 18% of total global AUM by 2030, up from 11% in 2021, while the US market will decrease from 52% of AUM in 2021 to 46% by 2030. Meanwhile, Europe and the UK should maintain approximately the same percentage of global AUM, with the UK capturing only 2% of net new investment flows through the end of the decade. 

If a portfolio manager teleported from 2020 into 2030, they would most likely not recognise their industry.

With the increasing importance of retail in asset management, more domestic investments gaining traction, technology such as artificial intelligence and cryptocurrency making significant inroads, and the growing footprint of China, we expect the 20th-century norms of asset management to be substantially altered by the end of the decade.

Daniel Celeghin, an Indefi managing partner and co-author of the paper.

Investments in cryptocurrency are already larger in market capitalisation than the entire high yield bond asset class, and about half as large as the full municipal bond market, according to the paper. Artificial intelligence will gain traction in the industry, said the report, not yet in replacing portfolio managers, but more in assisting investment, distribution, and business leadership professionals to do their jobs more efficiently.  

Do you agree with the research report’s findings? Share your thoughts in the comments section.

Read the full report here.