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China drives global AUM to $79.2trn

Driven by mainland investors, the global asset management industry in 2017 had the strongest growth in a decade, according to a new BCG report.

Global assets under management hit $79.2trn in 2017, driven by China and buoyant stock markets, according to the report from Boston Consulting Group.

In 2017, China had 22% AUM growth to $4.2trn, making it the fourth largest investment market globally, the report said. By comparison, at the end of 2012, the figure was $1.5trn.

“The partial opening and rapid growth of the Chinese market has created the conditions for a potential gold rush among foreign firms,” the report said.

“We expect China’s AuM to triple by 2025, which — if it comes to pass — would make the Chinese market the second-largest after the US,” said Qin Xu, partner and co-author of the report.

Large global firms, sensing the potential of China’s investor base, have been quietly setting up onshore fund structures. Some, such as Fidelity and UBS AM, have already launched domestic funds, FSA reported earlier.

China AUM growth was from both institutional and retail investors, “thanks to a high household savings rate and regulatory reforms that have encouraged pension funds and insurers to use asset managers”, the report said.

“The Chinese market is seeing rapid development of new products, digital distribution and tech-driven innovation to improve customer experience. These advances will raise additional competitive hurdles – while at the same time creating new opportunities – for traditional  players trying to build their business in China, as well as for those still trying to enter the market.”

 

Global AUM 2007 – 2017 (US$trn)

Source: BCG global asset management market-sizing database 2018

 

North America also helped drive growth last year, with assets rising 13% to $37.4trn.

However, the firm cautioned that the bull markets that played a key role in driving 2017 AUM have cooled.

“Most of the bounce-back growth of 2017 was market driven, not structural,” said Renaud Fages, partner and co-author of the report.

“Cost pressures and fee erosion will persist, especially when equity-market growth slows, as it shows signs of doing in 2018.”

Smart beta alert

Globally, the AUM of passive products grew a record 25%, driven by the stock market performance last year, the report said. Passives now represent $16trn or 20% of global AUM.

Active products now represent one-third of global industry AUM compared to 57% in 2003, the report said.

Smart beta products were singled out as a potential threat on the horizon. Smart beta products have grown assets 30% annually since 2012, though AUM is still small at 0.5% of the global total.

Nonetheless, the firm believes smart beta’s aim of replicating active management results but charging lower fees – on average 35 basis points vs 50 basis points for active – has the potential to be a game changer.

“In the future smart beta products will pose a substantial threat to traditional active players – potentially even greater than that of the overall shift to passives.”

Part of the Bonhill Group.