Fee pressures, interest rates could decimate asset management industry: PWC

investmentnews.com:

The asset management industry is facing significant consolidation, with a prediction that one in six companies may disappear within the next four years as a result of market volatility, high interest rates and fee pressures.

According to a recent survey conducted by PwC, 16% of existing asset and wealth managers are expected to either go out of business or be acquired by larger groups by 2027. This trend is driven by the challenging market environment, prompting nearly three-quarters of asset managers to consider acquiring or merging with competitors.

“The big managers are getting bigger,” said Olwyn Alexander, PwC’s global asset and wealth management leader.

The industry is currently facing cost pressure and margin constraints, forcing managers to evaluate their critical mass and ability to withstand the pressures from larger players while maintaining profitability.

“If interest rates linger around 4% through 2024 and beyond, private markets managers will need to significantly raise their target internal rates of return (IRR) simply to compete, just as tough economic conditions and the end of cheap funding make this more difficult,” according to the report.

This outlook comes as fund managers grapple with the largest decline in assets in a decade. According to PwC’s findings, the assets managed by asset managers fell by 10% between 2021 and 2022, dropping from a high of $127.5 trillion to $115.1 trillion. Falling markets across various asset classes have negatively impacted management and performance fees. Factors such as inflation, market volatility and interest rates were cited as the primary drivers of this decline. Additionally, nearly half of the managers surveyed predict that their assets under management will be