Improvements in technology and regulatory reform have made geographical constraints even less of an issue in terms of capital management, resulting in the asset management industry becoming more global, a recent report by Goldman Sachs said.
In fact, Goldman Sachs estimates that 33% of the assets under management with the global asset managers it covers that are public companies is now sourced from outside their domestic markets. Global AUM has grown by 8% per year over the last 10 years. Goldman Sachs analysts expect this growth to continue, creating opportunities for global fund managers.
“This global dimension to the industry is likely to become more important over the coming years as geographical constraints moderate further, creating opportunities and challenges for both companies and investors to navigate,” the report said.
In the report, “Global Asset Managers: From Local Strengths to Global Opportunities,” Goldman Sachs highlights four key factors that should shape the global asset management industry over the next few years: the growth in passive investments vehicles, a shift in demographics, the rise of shadow banking and the formation of global capital.
A well-positioned asset manager, the report said, has a favorable business mix with a diverse asset base, a high exposure to institutional clients and receives stable, recurring fees for its services, which have been growing over time.
Examples of well-positioned asset managers within the global asset management industry that Goldman Sachs provides in the report include Invesco, IOOF Holdings, Aberdeen Asset Management, Artisan Partners and Blackstone Group.
Exchange-traded funds have grown to 0.8% of global AUM as of mid-2014, up from less than 0.1% in 2001, and assets are expected to grow more than twice as fast as active funds over the next few years. In addition, the aging demographics of most developed economies are likely to drive both an increase in savings and also a shift in the type of product demanded to lower-volatility asset classes, like fixed income.
In addition, asset managers have responded to the scaling back of banking activity in many areas of the capital markets by offering mutual funds, money market funds, private equity, hedge funds and strategies that provide leverage, create credit or perform maturity transformation. This “shadow banking” system is currently $71 trillion and growing by 7.5% per year.