Shrinking cross-border investing will make running global asset firms a challenge while individual investors will have more
Domestic investments and retail investors are to become more important to the asset management industry in the coming years.
A new whitepaper challenges the growth path that many firms may be considering, citing changing demand and trends within the global investment environment.
Indefi, an asset management industry strategist consultancy, says that the major trend towards globalization of the industry, seen in the last 20 years, will shrink by the end of this decade.
By 2030, less than one fifth of investment flows will enter cross-border investments, the report states, making running a global enterprise tougher.
The report calls for domestic equity, fixed income and alternatives markets will attract almost US$20 trillion in net new money, almost four times more than the $4.5 trillion in net flows into their international equivalents over the same period.
It also calculates that the share of local versus cross-border investments will grow from 74% in 2021 to 85% by 2030.
Retail investors to dominate
There’s another big shift ahead according to the report.
Indefi’s research shows that individual retail investors held 52% of global assets under management (AUM) in 2021 but are projected to hold 61% of $175 trillion AUM by 2030. In the same period, the share of AUM held by institutional investors is expected to decrease from 31% to 26%.
The share of the revenue in the asset management industry from individual investors is also expected to rise, from 61% in 2021 to 67% by 2030.
That puts more power in the hands of the individual and with their investments typically under greater regulation than institutional investors, this will further fuel the deglobalization of the industry.
Other trends
Greater focus on domestic investment activity and retail investors are not the only trends identified by Indefi.
The report shows that investments in cryptocurrency are already larger in market capitalization than the entire high yield bond asset class, and about half as large as the full municipal bond market. Private markets will also continue to expand.
Meanwhile, outcomes, including sustainability, will be more important than returns.
In wealth technology, artificial intelligence will gain traction in the industry, not replacing portfolio managers but assisting investment, distribution, and business leadership professionals to do their jobs more efficiently.
Unrecognizable industry
Daniel Celeghin, an Indefi managing partner and co-author of the paper, said that a portfolio manager teleported from 2020 to 2030 would likely not recognize 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,” he said.
