The Skorina Report is Surfing the Age of Asset Management: Will the tide of global AUM lift all asset-management boats?

Skorina 1 Fundfire (2)By Charles Skorina

The future looks bright for investment-management professionals as global assets under management surge from the current estimated $87 trillion dollars to a projected $400 trillion in 2050.

Andrew G. Haldane of the Bank of England recently declared that global assets under management presently stand at about $87 trillion and says they’ll rise 15 percent to $100 trillion by 2020, just five years from now.

Looking farther out, Mr. Haldane foresees global AUM quadrupling to $400 trillion by 2050, boosted by macro-trends in population growth, longer life spans, increasing GDP per capita, and accelerating growth in retirement savings in developing countries:

“The drivers of this growth are reasonably well-understood.  The pool of prospective global savers has become larger, older and richer, each of which tends to be a boon for the asset management industry.  Since 1950, average life expectancy has risen by nearly 50%, world population has risen by a factor of three and world GDP per capita has risen by a factor of nearly 40.  There is a strong cross-country correlation between GDP per capita and AUM relative to GDP.”

Today, we may be shuffling through the anemic, slow-growth world of the New Normal in terms of conventional GDP measurement.  But Mr. Haldane stipulates that AUM is growing much faster than GDP.  For instance:

“In the United States, AUM have risen almost fivefold relative to GDP since 1946, from around 50% of GDP to around 240% of GDP.”

As he says:

“If these trends are even roughly right, asset management may not only have come of age – we may be about to enter the Age of Asset Management.”

Mr. Haldane, still a youngish 46, is considered one of the leading global-finance thinkers.  He’s recently been named to the post of Chief Economist at BOE and, given his career trajectory, no one would be much surprised if he eventually rises to the BOE governorship, counterpart to the U.S. Federal Reserve Chairman.

He is perhaps best-known in the U.S. for a provocative and influential paper he read at the Kansas City Fed’s annual Jackson Hole conference in 2012: “The Dog and the Frisbee.” 

Mr. Haldane is chiefly concerned with the stability of global financial institutions, primarily banks.  But, in his recent speech, he pointed out that funds were rapidly leaking out of the formal banking network and into…other things.  We could broadly call them “asset managers,” but the proposed acronym is: NBNISII.  That is: non-bank, non-insurer, systematically important institutions.  These may include pension funds, hedge funds, private equity funds, sovereign-wealth funds, family offices, etc.

Well, Mr. Haldane has his job, and we have ours.  We’ll let him worry about the macro-behavior of these entities.  But we think he probably has as good a grip on the overall stats and trends as anyone, and we’re interested in the expected impact of this money on the demand for investment-management professionals.

This is global money, increasingly generated in the developing world, but a very disproportionate chunk of it, and the people who run it, will end up where they always have been: in the money-management institutions of the developed West, including the UK, US, and Canada.  In other words, dear readers, in the institutions you work for or do business with.

Mr. Haldane notes that the holdings in hedge funds, private equity, real estate, infrastructure, commodity funds, etc. — the areas requiring the most experience, training and expertise — have already tripled in less than a decade from under $2 trillion AUM in 2003 to over $6 trillion in 2012 and the pace shows no signs of relenting.

Outsourced CIO Firms Continue to Hire as they Ride the AUM Wave

In our own latest Ultimate Outsourcer List study, we noted that assets managed by OCIO firms have passed one trillion dollars as of March, 2014.

And just last week (July 7, 2014) Christine Williamson, writing in Pensions & Investments, counted $1.206 trillion in assets under full or partial discretionary management as of March 31, 2014.

All eyes on the high and ultra-high net worth segments.

Another recent study by McKinsey & Company projects strong asset grow and management opportunities in the high and ultra-high net worth segments.

Their July, 2013 global private banking survey reported that “over the past four years, millionaire wealth has grown by 8.5 percent annually to around USD 60 trillion at the end of 2012.  By 2016, we project that some 16 million millionaires will control about USD 80 trillion in personal financial assets – 30 percent above current levels and nearly double the post-crisis trough.  Future growth will be particularly fueled by the UHNW with over USD 30 million.  We expect their wealth to increase by about 8 percent annually compared with about a 6 percent increase for core millionaires with USD 1 to 10 million.”

The public pension sector will have to compete harder for investment talent.

Even U.S. state and local pensions ($3.05 trillion in DB assets as of fiscal 2012) should see hiring increases as governments are forced to cover their massive unfunded liabilities (estimates range from $730 billion to $4.4 trillion) and look for better returns and “Underfunded Public Pensions in the United States.”

Managing the money.

As absolute numbers, it’s hard to reconcile all of these stats, which probably include some serious double-counting.  It’s the overall trend which interests us, and it’s unmistakable.

And it’s impossible to model this secular growth of AUM to projected management jobs, but the trend is, again, unmistakable.

As we concluded three years ago in our article “$58 Trillion – The Gift that Keeps on Giving,” all that money, public and private, has to be managed in some fashion by someone, and that someone expects to be well paid for his or her efforts.

 

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