Asset manager M&A on the rise: PwC

Driven by the desire to access new segments, build market share, and diversify product offerings, there’s a resurgence in M&A and partnerships in asset managers, according to PwC’s 2023 Global Asset and Wealth Management Survey.

Nearly three-quarters (73 per cent) of the 250 asset managers surveyed said they are considering a strategic consolidation with another asset manager in the coming months. 

“By 2027, 16 per cent of existing asset and wealth management organisations will have been swallowed up or have fallen by the wayside — twice the historical rate of turnover,” PwC noted. 

The firm expects the top 10 asset managers to control around half of all mutual fund assets in the next four years.

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“Alongside their increasing role in funding and influencing the real economy and retaking centre stage, some asset managers may even consider a more holistic approach to financial wellness, with banking and insurance solutions attained through mergers and acquisitions, joint ventures, or alliances,” it stated. 

Of the factors in play for managers when it comes to consolidation, 43 per cent cited gaining access to a new segment, client, or opportunities. Some 38 per cent cited increasing market share and reducing competition.

Other factors included mitigating risks and diversifying product offering (37 per cent), leveraging highly skilled individuals or teams from other firms (31 per cent), and hedging against inflationary pressures (28 per cent).

“M&A can be the key to acquiring the distribution capabilities and the vertical integration that create openings for cross-selling and the direct customer relationship,” PwC added.

“As investor expectations evolve, acquisition can also help to secure the capabilities needed to deliver the right experience and product mix.” 

The survey also looked at key challenges the asset and wealth management (AWM) industry is facing around the world. 

It noted that interest rate movement, inflation, and market volatility remain the biggest concerns over the next 12–24 months. Outperforming the market will be challenging, particularly for managers with little or no experience operating in such uncertain environments.

Secondly, shifts in investment allocation, including greater demand for exchange-traded funds (ETFs) as evidenced by previous PwC research, and the opening up of private markets “are transforming the competitive landscape and the frontiers for growth”, it said.

Building ESG expertise in portfolio management teams will continue to grow in importance, with 60 per cent of asset managers believing it to be essential in today’s market. However, it remains difficult to find the right talent. 

Finally, PwC identifies that the majority (90 per cent) of the 250 institutional investors surveyed are of the opinion that the use of disruptive technologies like blockchain and artificial intelligence will lead to better portfolio returns and outcomes, although this area of investor expectations remains the most challenging for asset managers. 

“The good news is that the AWM industry has shown remarkable resilience in adapting to changing market conditions and evolving investor demands over the years. Indeed, as near-term pressures mount, we’re already seeing the emergence of a new breed of AWM organisation: tech-enabled, customer-focused, and prepared to operate across a wide range of asset types, both within and outside traditional AWM,” it stated.

“By 2027, we expect the industry will be transformed and — as a result — it will be imperative for leadership to adapt accordingly.”