Global passive assets are set to more than double from $14 trillion in 2016 to $37tn by 2025, according to a recent report from professional services firm PwC. The research indicates that while assets under management (AUM) of both active and passive funds is expected to increase, passive funds are set to see the fastest growth over the next ten years, highlighting the potential for future expansion in the ETF industry.
Global passive assets are set to increase their market share from 17% to 25% by 2025.
PwC forecasts that funds under passive management will make large gains in market share, rising from 17% of overall global AUM in 2016 to 25% in 2025. Actively managed funds will grow from $61tn in 2016 to $88tn by 2025, but their share of total AUM will decrease from 71% in 2016 to 60% by 2025, while alternatives’ market share will rise from 12% to 15%.
Olwyn Alexander, global asset & wealth management leader, PwC, commented: “In the ongoing debate of active versus passive investing, we are optimistic for both. While we anticipate a faster pace of growth for passives due to greater allocation than for active, well still predict growth in active investments, which will continue to preserve active management’s dominant market share.
“It is important to remember that in a rising market passive returns are very attractive at low cost but that inevitable market corrections will bring a continued appreciation for the value of active investments. Both will be key building blocks in balanced portfolios to meet specific investor outcomes.”
The report, entitled ‘Asset & Wealth Management Revolution: Embracing Exponential Change’, also details PwC’s expectations for a growth rate of 6.2% per annum in the period to 2025 for total global AUM, with the fastest growth seen in the developing markets of Latin America and Asia Pacific.
PwC also notes that the burgeoning wealth of high-net-worth individuals and the mass affluent, as well as a pronounced shift to defined contribution retirement saving, are propelling huge growth in the asset and wealth management industry. Retail funds, including ETFs, will almost double assets by 2025 according to the report, while institutional mandates will see a similar expansion.
The report goes on to predict significant change in the asset management industry over the next ten years. Alexander continued, “Asset managers can take advantage of this massive global growth opportunity if they’re innovative. But it’s do or die, and there will be a ‘great divide’ between few haves and many have nots. As a result, things will look very different in five to ten years’ time and we expect to see fewer firms managing far more assets significantly more cheaply.”