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1、M BluePaperOliver Wyman is a global leader in management consulting.For more information,visit .Oliver Wyman is not authorized or regulated by the PRA or the FCA and is not providing investment advice.Oliver Wyman authors are not research analysts and are neither FCAnor FINRA registered.Oliver Wyman
2、 authors have only contributed their expertise on business strategy within the report.Oliver Wymans views are clearly delineated.The securities and valuation sections of this report are the work of Morgan Stanley only and not Oliver Wyman.For disclosures specifically pertaining to Oliver Wyman,pleas
3、e see the Disclosure Section located at the end of this reportMorgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research.As a result,investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of Morgan Stanley Research
4、.Investors should consider Morgan Stanley Research as only a single factor in making their investmentdecision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of this report.+=Analysts employed by non-U.S.affiliates are not registered with
5、FINRA,may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.Asset&Wealth ManagementThe AI Tipping Point Gen AI will transform the way the industry
6、operates,but it is just one part of an integrated strategic approach to drive growth and build resiliency.M BluePaper2MORGAN STANLEYBetsy L.Graseck,CFA 1EQUITY ANALYST+1 212 761 8473Betsy.GMichael J.Cyprys,CFA,CPA 1EQUITY ANALYST+1 212 761 7619Michael.CBruce Hamilton 2EQUITY ANALYST+44 20 7425 7597B
7、ruce.HAndrei Stadnik,FIAA 3EQUITY ANALYST+61 2 9770-1684 Andrei.SGiulia Aurora Miotto,CFA 2EQUITY ANALYST+44 20 7425 5344 Giulia.Aurora.MConnell J.Schmitz 1RESEARCH ASSOCIATE+1 212 761 6252Connell.SStephanie Ma 1RESEARCH ASSOCIATE+1 212 761 3552Stephanie.M OLIVER WYMANJoshua ZwickPARTNER+1 917 846 9
8、483Joshua.ZKamil Kaczmarski,CFAPARTNER+49 69 97173573Kamil.KJoo Miguel RodriguesPARTNER+49 30 39994558Joaomiguel.RAdam KhadraPRINCIPAL+44 7585 880287Adam.KJose EibarPRINCIPAL+1 312 560 1845Jose.ELuke HutchinsonENGAGEMENT MANAGER+1 646 241 5081Luke.HNancy HuangASSOCIATE+1 347 607 8703Nancy.H1 Morgan
9、Stanley&Co.LLC2 Morgan Stanley&Co.International plc+3 Morgan Stanley Australia Limited 4 Morgan Stanley Asia(Singapore)Pte.+5 Morgan Stanley MUFG Securities Co.,Ltd.6 Morgan Stanley Asia Limited 7 Morgan Stanley&Co.International plc,Seoul Branch 8 Morgan Stanley&Co International plc(DIFC Branch+=Ana
10、lysts employed by non-U.S.affiliates are not registered with FINRA,may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.AuthorsM BluePaperMorgan S
11、tanley Research3MORGAN STANLEYNick Lord 3EQUITY ANALYSTNick.LMia Nagasaka 5EQUITY ANALYSTMia.NRichard Xu,CFA 6EQUITY ANALYSTRichard.X Joon Seok 7EQUITY ANALYSTJoon.SVishal Shah 1EQUITY ANALYSTVishal.Shah6 Ryan Kenny,CFA 1EQUITY ANALYSTRyan.KMarina Massuti 2RESEARCH ASSOCIATEMarina.MAnnalei Davis 1RE
12、SEARCH ASSOCIATEAnnalei.DOLIVER WYMANChristian Edelmann,CFAPARTNERChristian.EHuw van SteenisPARTNERHuw.VMagnus Burkl,CFAPARTNERMagnus.BBradley KellumPARTNERBradley.KPhilip SchroederPARTNERPhilip.SJasper YipPARTNERJasper.YAllwyn BarretoPARTNERAllwyn.BRainer GlaserPARTNERRainer.GJohn LesterPARTNERJohn
13、.LDavid WallerPARTNERDavid.WRandy LampertPRINCIPALRandy.LRichard Shepherd,CFASENIOR RESEARCH SPECIALISTRichard.SKaren YeungCONSULTANTKaren.YLily SteinCONSULTANTLily.SBradly DAlessandroRESEARCH ANALYSTBradly.DA1 Morgan Stanley&Co.LLC2 Morgan Stanley&Co.International plc+3 Morgan Stanley Australia Lim
14、ited 4 Morgan Stanley Asia(Singapore)Pte.+5 Morgan Stanley MUFG Securities Co.,Ltd.6 Morgan Stanley Asia Limited 7 Morgan Stanley&Co.International plc,Seoul Branch 8 Morgan Stanley&Co International plc(DIFC Branch)+=Analysts employed by non-U.S.affiliates are not registered with FINRA,may not be ass
15、ociated persons of the member and may not be subject to FINRA restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.ContributorsM BluePaper45 Executive Summary 9 1.State of the Industry16 2.Getting on the Right Side of the
16、Big Sort:Asset Managers30 3.Taking the Steering Wheel on Driving Growth:Wealth Managers37 4.The Gen AI Revolution and What It Means for Asset and Wealth Managers53 5.Messages from Our Proprietary Survey55 Disclosures Contents M BluePaperMorgan Stanley Research5Executive Summary Despite the market re
17、bound in 2023,the asset and wealth manage-ment industries are still facing a long-term shift in the macroeco-nomic environment.For nearly 15 years since the Global Financial Crisis,a period of low,stable inflation and strong markets,buoyed by supportive monetary and fiscal policies,reigned over most
18、 of the developed world.This goldilocks period was disrupted in 2022,when central banks aggressively raised interest rates to tame inflation,leading to a simultaneous pullback in equity and fixed income mar-kets.The continued shift toward protectionism,nationalism,and multipolarity has further exace
19、rbated these macroeconomic chal-lenges,ushering in a world order characterized by more restrictive central banks,less fiscal flexibility,and greater geopolitical insta-bility that will likely take a toll on global growth and wealth creation.Given these macro headwinds,our outlook for the asset manag
20、e-ment industry is tempered.We forecast total externally managed assets to grow at 7%from 2022 to 2027,or a more normalized rate of 3.6%when measured from 2021,driven mainly by private markets.Core active is expected to continue to lose share,especially to pas-sive strategies,while the recent rapid
21、growth in money markets should slow,assuming the bulk of interest rate increases are behind us.Fee compression is set to continue,particularly among traditional asset classes,albeit at a moderated pace.As a result,we project industry revenue to grow at a slightly slower pace of 5.2%versus 7%of AuM f
22、or the same period,but with a pronounced shift toward pri-vate markets and select hedge fund strategies,which will constitute more than half of the total revenue pool of the industry by 2027.We expect retail/wealth growth to continue to outpace institutional at 7.9%vs.5.5%,propelling it to over 60%o
23、f global third-party man-aged AuM by 2027.We forecast global household financial wealth to grow at 6%from 2022 to 2027,led by APAC and the Middle East,as well as the ultra-high net worth individual(UHNWI)segment.After the long bull market,the wealth management industry is now encountering a more cha
24、llenging market environment,with structural headwinds hitting both the revenue and cost sides.The recent decrease in reve-nues has been largely driven by drops in AuM and loan volumes,as well as a significant reduction in transaction volumes as clients have pulled back trading activities relative to
25、 the elevated levels during COVID-19.This revenue slowdown,combined with strong wage infla-tion driving costs up,has intensified profitability headwinds.Despite these headwinds,we expect that the asset and wealth man-agement industries will continue to be among the most profitable in the financial s
26、ervices sector,generating relatively attractive returns on equity(RoE).However,the combination of lower top line growth and a stubborn fixed cost base that threatens to rise faster than rev-enue highlights the fragility of the industries operating model,where every future market downturn will be tha
27、t much more pun-ishing.In working with leading asset and wealth managers around the globe,as well as in our interviews with senior industry executives1 we con-ducted to help inform this report,one thing has become clear,however:Leading managers are embracing these challenges and using them to galvan
28、ize their firms commitment to reexamining their strategies,reimagining their operating models,and embracing new capabilities like generative artificial intelligence(Gen AI)to drive value and build resiliency in their businesses.Asset managers:Getting on the“right”side of the“Big Sort.”Three actions
29、to drive profitable growth and operational resil-iency The combination of persistent stress on asset manager operating models,the fading of macroeconomic tailwinds that have benefitted all firms,and revolutionary changes being ushered in by Gen AI has created conditions that will raise the competiti
30、ve bar and prompt a“Big Sort,”causing a large gap to emerge between leaders and lag-gards.The leaders will be those that not only invest in and position their businesses to take advantage of faster-growing areas,but also take a set of specific actions to drive profitable growth and build operational
31、 resiliency.Specifically:1.Fuel the active management engine to win share:We see a large opportunity for active managers to capture share from flows among actively managed funds,which we esti-mate to be 3x that of flows from active to passive.While delivering investment outperformance(i.e.,performan
32、ce alpha)will remain a critical driver of flows,it is not the only one:Managers that can deliver sources of“alpha”via product innovation,distribution and service,and fee structures will also be able to win share.1 We want to thank the industry executives who agreed to be interviewed for this report,
33、whose firms collectively manage and advise on over$21 trillion in assets.Their comments provided valuable perspectives and insights that have helped inform and validate the views expressed herein.M BluePaper62.Optimize pricing to capture more of the economics in the institutional segment:Fee pressur
34、e,most notably on tradi-tional strategies,has been relentless as institutional inves-tors continue to switch core exposures to passive while consolidating the number of managers they utilize,giving them additional leverage to negotiate larger,volume-based fee discounts.Managers are not helping thems
35、elves,with many having large pricing dispersions across their managed accounts,leading to massive profitability skews.We see sig-nificant revenue uplift,on the order of$50 million for a typ-ical$500 billion institutional manager for those that adopt a more disciplined and robust pricing framework.3.
36、Reset the operating model to build resiliency and provide a platform for growth:We see four primary sets of“levers”that asset managers can pull to improve operating margins and free up resources to invest in growth:de-scoping,organi-zational effectiveness and simplification,workforce manage-ment,and
37、 third-party cost management.Many asset managers have announced cost saving targets of 5-15%.Indeed,we contend that asset managers adopting more aggressive strategies can achieve cost savings of 20-40%by making difficult choices to trim their structural cost base,and by embracing a“virtual”model,rel
38、ying more on remote work and technology to power the business.2.Elevate capabilities to capture a greater share of new money:Workplace Wealth:Estimated at$35-50 trillion in assets,the modern workplace presents a significant opportunity for wealth managers to gain“early access”to a gold mine of retai
39、l clients.Once the workplace relationship is established,wealth managers can aim at the whole client relationship through its retail wealth manage-ment arm.Advising on defined contribution(DC)assets represents a revenue opportunity of$70-100 billion on$16 trillion assets,and also the opportunity to
40、advise on$15-25 trillion assets held away by participants.Stock recordkeeping can be a different avenue to the same destiny:By recordkeeping part of the$6-8 trillion vested and unvested assets worldwide,wealth managers can also aim to advise the$15-25 trillion assets held away of the workplace.While
41、 in its early stages,providing liquidity to private stock holders accounted for$60 billion in transaction volume in the last four years,and can be differentiating for wealth managers with investment banking capabilities targeting private firms.“Moneyball”for advisor growth:In the US alone,advisors s
42、witching employers represent$2-3 trillion in assets each year.With the poten-tial of bringing$120 billion in new assets every year,wealth man-agers adopting a data-driven approach to enhance their advisor recruitment efforts can build a significant edge.By focusing on three key areas establishing th
43、e right ambition,prioritizing the right advisor cohorts,and focusing on the right markets wealth man-agers can improve the effectiveness of their recruiting efforts.The AI“Tipping Point”and the Rise of the Generative AI(Gen AI)Machines Gen AI isnt a separate growth driver in itself.It has the potent
44、ial to supercharge efficiency gains across the operating model,which can free up even more resources to invest in profitable growth areas.While the technology underlying Gen AI has been around for several years,we believe we are now at a“tipping point”in terms of its ability to be deployed on a wide
45、spread basis across asset and wealth man-agers.Two plays for wealth managers to unlock net new money and drive profitable growth For wealth managers,we see two groups of initiatives that can unlock net new money and drive profitable growth:1.Crack the WMCIB enigma to win with key client segments:Fam
46、ily Office and Entrepreneurs&Executives:These segments represent a revenue opportunity of over$200 billion for wealth managers who can offer a proposition that combines wealth manage-ment(WM)with corporate and investment banking(CIB)products.Family offices serve complex investment needs and require
47、custom-ized investment solutions,as well as access to exclusive investment opportunities.Entrepreneurs and business owners,who make up half of HNWIs globally,have unique financial needs,combining busi-ness and personal needs.Successful collaboration across WM and CIB is key to winning in these segme
48、nts.Joint capability and coverage teams that holistically address client needs are the most effective approach.M BluePaperMorgan Stanley Research7Exhibit 1:AI Tipping PointAI capabilitiesGenerality of application:Broad range of Gen AI applications,spanning across industries,business functions,and ca
49、pabilitiesBetter accessibility and ease of use:Gen AI applications have a high degree of accessibility and user-friendly interfaces,with no technical background required to effectively utilize and build toolsHigher degree of accuracy than previous generations of natural language processing(NLP),able
50、 to better understand and generate sophisticated language than earlier AI systemsSource:Oliver WymanWhile experimentation and piloting are widespread,leaders are already deploying and extracting tangible benefits from Gen AI Firms that have already successfully implemented Gen AI solutions have focu
51、sed on areas where it has the greatest“fit”potential,namely where there is abundant information to interpret and synthe-size,a need to generate moderately customized or creative content,and where the activities involve routine tasks.When properly deployed,Gen AI can lead to significant productivity
52、gains across the value chain.While it is still quite early in the adoption of this tech-nology,our estimates of potential productivity gains reflect views of industry executives on the expected benefits of fully ramped-up AI tools over time.We expect these initial estimates to evolve as more asset a
53、nd wealth managers adopt AI at scale and the range of bene-fits become clearer.Our current research suggests the following:In sales and client service,Gen AI can enhance sales or advisors ability to engage existing clients and enable better identification and conversion of prospective clients.By fre
54、eing up time spent on admin-istrative tasks,helping prepare more customized insights about cli-ents and tailored answers to inquiries,we estimate that Gen AI can lead to potential productivity gains of 30-40%for sales and advisors.In product development,Gen AI can accelerate routine tasks,such as re
55、port drafting and market research,potentially enhancing pro-ductivity for asset managers by 25-35%and allowing for faster time to market with products better tailored to market demand.In investment&research,Gen AI can empower portfolio managers in investment research and risk analysis by replacing i
56、nformation col-lection,summary,and data cleaning tasks with higher-value valida-tion and idea generation activities,resulting in up to 30%productivity gains.For mid-&back-office functions,Gen AI can improve efficiency for legal,compliance,and operational tasks,and democratize ability to code,saving
57、25-50%of employee time.The initial focus for Gen AI is overwhelmingly on driving efficiency gains over directly expanding new revenue streams or driving alpha.Part of the reason for this is that efficiency gains help to deliver the incremental budget for AI.It is important to note,however,that effi-
58、ciency gains free up time and resources that can be reallocated to higher-value activities to support revenue-generating activities,enable better investment decisions,or improve client engagement and experience.As part of generating these efficiency gains,firms have not(yet)been utilizing Gen AI to
59、replace resources.Rather,the technology has been used as more of a copilot,or a tool that enhances human capabilities,often by shifting the balance of activi-ties away from basic content creation and synthesizing to reviewing,validating,and further customizing outputs.The transformative power of Gen
60、 AI doesnt come without risksSome 10 years ago,the famous physicist Stephen Hawking said,Success in creating AI would be the biggest event in human history.Unfortunately,it might also be the last,unless we learn how to avoid the risks.”As the deployment of Gen AI becomes increasingly preva-lent,orga
61、nizations must carefully assess and mitigate the unique risks and limitations inherent in the technology,which fall into two main categories:“technological”and“usage.”Exhibit 2:AI Technical and Usage RisksAI Usage RisksAI Technological RisksTraceabilityThreat of cyberattack and fraudHallucinationImp
62、roperly trained modelsDifficulty controlling outputsData privacyObservability of interactionsCopyright concernsSource:Oliver WymanM BluePaper8Responsible deployment of Gen AI tools requires that all stake-holders understand that Gen AI is a capability in need of significant oversight.So far,the indu
63、stry seems to be responding to these chal-lenges,with many firms maintaining a“human-in-the-loop”approach to AI adoption whereby a human is involved in the deci-sion-making process alongside AI,so that AI operates with human oversight,intervention,and validation.Firms that will benefit most from dep
64、loying Gen AI in their busi-nesses will satisfy seven key success factors Successful implementation of Gen AI requires a thoughtful and stra-tegic approach by asset and wealth managers to maximize impact and manage risks.We have identified seven imperatives for managers to effectively harness Gen AI
65、s potential.Some of these we see as“table stakes”firms looking to get any meaningful benefit from deploying Gen AI technology should adopt these actions.Others are potential sources of competitive differentiation firms that can successfully execute on these will be able to extract the most bene-fits
66、,driving outsized efficiency gains,improving investor outcomes and client experiences,and delivering industry-leading value to all their stakeholders.Exhibit 3:Key Success Factors for Implementation of Gen AI Competitive differentiatorsTable stakesDeploy proprietary data as a strategic asset with th
67、e right data environmentAdopt a holistic or systems-based approachIdentify whether Gen AI is the right solution for specific business problemReimagine operations to exploit possibilities of AIEvolve talent strategy and develop right teaming modelsMaintain trust and transparencyStrike the right balan
68、ce of in-house capabilities and outsourcingSource:Oliver Wyman From our project work and conversations across the industry,firms are at very different points in terms of how well they are satisfying these success imperatives,but everyone is trying to move as fast as possible given the range of const
69、raints the asset and wealth manage-ment industries face.The bar to even compete much less win is being raised every day.Figuring out how to best deploy these capa-bilities will be a crucial determinant of an organizations long-term success.M BluePaperMorgan Stanley Research91.State of the Industry1.
70、1.Global Asset Management OutlookThe broad-based sell-off in 2022 cut$14 trillion from global exter-nally managed assets under management(AuM),dropping it from$118 trillion to$104 trillion after years of steady growth.2 The chal-lenges of 2022 have faded to some extent,with the S&P 500 Index up near
71、ly 16%through the first half of 2023,largely propelled by a tech-led(especially AI-related)rebound that has helped lift global externally managed AuM close to its previous high.Exhibit 4:Global Externally Managed AuM$TN,2017-23E8002120222023E9.9%-11.6%Source:Oliver W
72、yman Global Asset Management ModelLooking ahead,we expect a 7.0%compound annual growth rate(CAGR)from 2022 to 2027 in AuM when measured off a lower end-of-year(EOY)2022 base;measuring from 2021 suggests a more nor-malized growth rate of 3.6%.That growth will not be equally shared by each market segm
73、ent.Private markets:We expect private markets to continue fueling global AuM growth,but at a slower rate relative to past years(from a 19%CAGR in 2017-22 to a 13%CAGR in 2022-27E)as signs of private equity fundraising struggles have emerged in 2023 and as institu-tional allocations slow from peak.Ne
74、vertheless,it should still out-grow other segments,ultimately accounting for 16%of global AuM by 2027 versus 12%in 2022.2 Global AuM size of 1H23 was not available at the time of publishing due to institutional AuM being reported with a time lag.Democratization of private markets for retail investor
75、s remains a key growth driver over the coming five years given improved access enabled by product innovation(e.g.,interval and tender offer funds,BDCs and other semi-liquid fund offerings),advancements in tech-nology(e.g.,fund distribution and administration platforms),and increased commitment by GP
76、s to educate advisors to help them sell these more complex products.Within private markets,the relative growth outlook varies across the different asset classes.Private equity(64%of private markets AuM3)Compared to the boom years following COVID-19,when low rates,massive global stimulus,favorable pu
77、blic market envi-ronment,and frenetic deal-making characterized the market,corporate private equity has since experienced fundraising challenges in 1H23 as these factors reversed.Falling public markets in 2022 meant some institutional investors brushed up against allocation limits,reducing their dem
78、and for private equity products.As this allocation effect fades and retail/wealth investors continue to channel capital into PE offerings,the longer-term outlook remains bullish,particularly for the largest,most well-renowned,and resourced firms who have the fund-raising capabilities and global foot
79、prints to tap into the most attractive pockets of growth.Real estate(13%of private markets AuM)After record years pre-2022,the outlook remains challenged over the short to medium term as the real estate sector undergoes a period of repricing across investment styles,including core and core-plus stra
80、tegies in A-locations,and the commercial real estate sector works through refinancing challenges.The outlook is linked with broader economic activity,with a positive outlook for new sectors like data centers,as well as opportunistic strategies that monetize current repricing and expected restructuri
81、ng cases.3 Source:Preqin.M BluePaper10Private credit(12%of private markets AuM)The private debt total addressable market is estimated at$23 trillion,but only 6%is currently penetrated by private credit managers,leaving plenty room for growth.This is par-ticularly prominent across Europe and APAC,whe
82、re banks still play an important role,but alternative lenders have learned how to partner with them.Higher rates and refinancing risk are potential headwinds,but lack of traditional bank financing,particularly in the riskier segments,has given managers pricing power,making the yields on offer even m
83、ore attractive to investors and posi-tioning private credit to be one of the fastest-growing seg-ments.Infrastructure(9%of private markets AuM)Tailwinds are generated by asset owners climate commit-ments and massive government spending programs to finance decarbonization plans and the energy transit
84、ion,helping to offset some more recent fundraising challenges caused by the impact of higher rates,valuation levels,and some natural reversion from a red-hot 2022.Investors continue to express interest in growing their infra-structure allocations.Some value lower risk,consistent yield,greater downsi
85、de protection,and inflation-hedging charac-teristics;others want to participate in more speculative investments focused on the energy transition and advanced technologies.The strongest growth areas are expected across new invest-ment themes,including clean energy,battery storage,carbon management,wa
86、ste management,and energy transmission.Natural capital(2%of private markets AuM)Historically,natural capital investments,which are predomi-nantly in forestry and land,have been viewed as niche asset classes,primarily attracting the interest of large institutional investors and family offices.The gro
87、wing interest in climate solutions suggests that the asset class is at an inflection point,with a rising number of investors directing capital toward investments related to carbon sequestration,biodiversity,and carbon credits.Hedge funds:The challenging macroeconomic and financial market conditions
88、that characterized 2022 have provided an“alpha rich”opportunity for those who have been able to take advantage of the volatility.In particular,the performance of some multi-strategy and global macro strategies has been resilient.As the economy and finan-cial markets reeled from the shock of COVID-19
89、 and the subsequent policy responses,these strategies have been able to generate rela-tively strong flows.We expect demand to remain strong for these liquid,non-correlated sources of alpha that have a proven ability to navigate these complex market and global paradigm shifts.Passive:Looking forward
90、to 2027,we expect the growth of passive strategies in developed markets,particularly fixed income,to remain robust.Investors will likely continue to seek out cost-efficient invest-ments to replace their traditional core active assets,which have struggled to outperform despite the opportunity to demo
91、nstrate value-add in the difficult markets of 2022.Passive funds have also become increasingly popular within APAC and emerging markets;however,penetration will remain comparatively low due to less effi-cient capital markets and relatively nascent index-tracking infra-structure.Core active:Without s
92、trong outperformance over benchmarks,tra-ditional active managers will continue to bleed assets to passive.Yet the future for core active strategies is not entirely bleak.The best performing managers in capacity-constrained strategies will con-tinue to attract flows,and there are bright spots in the
93、matic and responsible investing.4 Vehicles such as active ETFs,retail sepa-rately managed accounts(SMAs)and collective investment trusts(CITs)will also be attractive opportunities due to lower all-in costs and greater flexibility.We also see scope for inflows into fixed income strategies as rates pe
94、ak out and asset owners lock in current attractive yields ahead of any future rate cuts.At the overall industry level,however,we expect the unfavorable secular flow and fee dynamics to remain in place,meaning that for a given manager,growth will hinge on their ability to gain share of a shrinking pi
95、e and optimize the value of what is available.Solutions/multi-asset class:We expect solutions to grow faster than the overall market.This will primarily be driven by increasing demand for outsourced CIO solutions from institutions,bespoke and personalized portfolios for HNWIs and family offices,and
96、the con-tinued flow into retirement solutions like target date funds(TDFs)and(semi-)guaranteed payoff structures that have become more attractive at higher rate levels.4 Includes Screened Sustainability/thematic investment,Screened Best-in-Class&Positive screening,Screened-Impact investing,Embedded
97、Exclusions,Embedded Integration/Engagement according to categorization by Broadridge.M BluePaperMorgan Stanley Research11Money market:We expect money market funds to benefit from higher interest rates in the short term.However,with some banks offering rates similar to those available in money market
98、 funds,com-petition is heating up.Any acceleration in loan growth or increase in quantitative tightening could drive banks to increase their deposit rates,weighing on money market flows to the extent the interest rate gap narrows.Moreover,if rates start to fall back as inflation cools and capital sw
99、itches to longer-duration fixed income to lock in attractive yields in advance of potential rate cuts,money market demand could suffer.Weighing these factors,we expect the medium-term outlook for money market funds to be positive but tempered.Exhibit 5 shows our five-year projection of AuM across th
100、ese main product categories,taking into consideration our view of expected relative flows across products and industry consensus forecasts for market returns.Exhibit 6 shows our projection in dollar terms.Exhibit 5:Global AuM Breakdown by Product$TN,2021-27E6+7.0%20222023E2027E35%202132%3
101、1%26%11%12%12%11%27%26%27%28%14%13%13%14%9%12%12%16%5%5%4%5%ProductCAGR 2227EHedge Funds7.6%Private Markets13.2%Solutions7.8%Passive8.4%Money Markets5.8%Core Active2.9%Source:Oliver Wyman Global Asset Management ModelExhibit 6:Global AuM Growth Breakdown by Product$TN,2022-27E54146102022Core activeM
102、oney MarketPassive SolutionsPrivate MarketsHedge Funds2027 E2104146Source:Oliver Wyman Global Asset Management ModelWe expect revenue to be slower than overall AuM growth(5.2%rev-enue CAGR in 2022-27E vs.7.0%AuM CAGR,or a more normalized 4.7%revenue when measuring from 2021)due to:1)some slowing of
103、private markets AuM growth and slight mix shift to lower fee debt strategies;2)persisting fee compression across most asset classes,particularly core active and passive,albeit at a moderated pace;and 3)additional mix shift impact from a rotation to lower-fee fixed income strategies.Looking beneath t
104、he headline number,we note the following:Private markets and hedge funds:Private markets have been the growth engine for many years,with revenues increasing consistently each year,despite the broader market sell-off in 2022,which was felt overwhelmingly by public markets managers.Looking ahead to 20
105、27,we expect alternative assets(including both hedge funds and private markets)to surpass half of global revenue,as the AuM growth out-look remains strong and average management fees hover around 100bps.We expect mixed dynamics on fees:Headwinds include lower forecast returns,greater bargaining powe
106、r of investors for volume discounts as managers compete for capital,large institu-tional investors preference for co-investments,and the increasing allocation toward lower-fee private debt strategies.These are bal-anced to some extent by tailwinds from the retail/wealth sector,where negotiating leve
107、rage is limited and investors look to address the historical under-allocation to private markets now that access has improved.M BluePaper12Passive,core active,and solutions:We expect fee compression across traditional products to ease slightly at the industry level.For passive funds,there is still r
108、oom to cut fees further,albeit at a mod-erate pace and magnitude,especially on an asset-weighted basis across the industry.For active funds,the pressure is likely to con-tinue,especially with the increasing popularity of lower cost active ETFs.As most products are simply a composite of passive and c
109、ore active products,the fee story on solutions is largely a consequence of the dynamics of the underlying strategies.Money market:We expect fee compression to slow for money market funds.During the prolonged low interest rate environment,money market fees dropped the fastest relative to other produc
110、ts,due to widespread adoption of expense waivers.However,rising interest rates have increased expected money market returns,enabling asset managers to remove expense waivers and revert to higher fee levels.Over the next 2-3 years,we expect a normalized interest rate environment to prevail,allowing m
111、anagers to maintain higher fee levels.Exhibit 7:Revenue Growth Projections by Product$BN,2021-27E 427438461564+5.2%15%15%15%15%26%34%35%41%11%10%10%10%5%3%5%3%5%3%5%3%202133%202232%39%2023E26%2027EProductCAGR 2227EHedge Funds5.1%Private Markets9.1%Solutions5.2%Passive6.8%Money Markets5.8%Core Active
112、0.1%Source:Oliver Wyman Global Asset Management ModelFrom a regional perspective,we expect emerging markets to have the highest growth rate.The typical growth engine,China,however,will slow to some extent given the combination of geopolitical tensions with the West,lingering cyclicality in the capit
113、al markets,and less aggressive pro-growth policies.While the growth picture is not as robust as reported in years past,China still represents an opportu-nity for asset managers who can take advantage of favorable trends(for example,approval of wholly foreign-owned mutual fund firms and reforms in th
114、e DC retirement market to grow third-pillar private pension).India is emerging as the next epicenter of growth,with its large,expanding population,favorable younger demographics with greater tendency to save and invest,and growth-oriented economic policies.The opportunities promise continued momentu
115、m for those already there and will garner rising interest from global asset managers looking to build a foothold in the market.Yet while the headline trends look positive,the dominance of large captive players creates challenges for global managers looking to win locally.Success will require underst
116、anding of market nuances and client needs,as well as developing tailored propositions for specific client segments.Southeast Asia and the Middle East are expected to continue bene-fiting from favorable demographic trends and the supply chain shift away from China,and for exporting countries,windfall
117、s from the rise in oil prices.However,it is hard to treat the market as monolithic as there are varying degrees of penetration of international investment strategies across countries,and each market will require asset man-agers to formulate tailored strategies that meet local needs,espe-cially in mo
118、re nascent markets like Indonesia.North America will continue to outpace Europe,with more favorable demographics,investment preferences,and wealth creation dynamics.Exhibit 8:Global AuM Breakdown by Region$TN,2021-27E202120222023E2027E67.0%3%4%4%3%17%18%19%20%27%26%25%24%52%52%52%53%Regio
119、nCAGR 2227ERest of World3.6%APAC8.3%Europe6.0%North America7.2%Source:Oliver Wyman Asset Management ModelAs has been the case for some time,retail channels will continue to outpace institutional in terms of AuM growth.We project the retail/wealth segment will account for 61%of global externally mana
120、ged AuM by 2027.While partly driven by the democratization of alterna-tive assets,as mentioned previously,this$24 trillion opportunity(the change in retail AuM 2022-27E)also represents growing global M BluePaperMorgan Stanley Research13wealth,led by the HNWI and UHNWI segments,which tend to have bet
121、ter access to world-class investment advisory services and more sophisticated products than the affluent segment.Major emerging markets remain committed to the liberalization and professionaliza-tion of their asset and wealth management ecosystem over the medium term,with a growing retail and middle
122、-class looking for pro-fessionally managed investments.A combination of the above fac-tors will lead to growth of externally managed retail AuM at a 2%faster rate annually than global total wealth(projected to grow at 6%from 2022 to 2027E,as shown in Exhibit 10).Our forecast of institutional AuM gro
123、wth is 5.5%for 2022-27E,which has increased slightly versus last year(2021-26E growth rate is 1.9%this year vs.1.5%last year).This change reflects the increased expected outsourcing of insurance exposures to third-party special-ists offering private credit and other high-yielding asset classes.Pensi
124、ons presents a mixed picture;increasing demand for profession-ally managed solutions from DC pension reforms in emerging mar-kets will be balanced by declining contribution rates in developed markets,while recovering funding levels of DB plans could drive increased use of buyout strategies,transferr
125、ing AuM on to internally managed insurance balance sheets.Historically,fees are richer in the retail/wealth channel(especially globally),and we expect this premium versus institutional to persist,driving an even greater revenue opportunity for those that can build the distribution,servicing,operatio
126、nal infrastructure,and distinctive value propositions required to compete in a highly heterogenous market.Exhibit 9:Global AuM Breakdown by Institutional vs.Retail$TN,2021-27E+7.0%659%59%59%61%41%41%41%39%202120222023 E2027 EGroupCAGR2227ERetail7.9%Institutional5.5%Source:Oliver Wyman Glo
127、bal Asset Management Model1.2.Global Wealth Management OutlookShrinking global wealth for the first time in more than a decade,but rapid rebound expectedFor the first time in over a decade,global household wealth shrank in 2022.Inflation,rising interest rates,heightened geopolitical ten-sions,and un
128、certainty regarding economic growth negatively affected wealth growth,leading to a decrease of 4%in 2022.Looking forward to 2027,we expect global financial wealth to grow at 6%(2022-27E)annually,with a strong rebound in 2023(Exhibit 10).We expect the Middle East&Africa,APAC,and Latin America to lead
129、,with growth rates of 8.2%,7.4%,and 6%,respectively.Within APAC,Japans growth will remain slow relative to the rest of the region,at 2.9%(2022-27E).Furthermore,while China remains one of the main growth drivers in APAC,recent uncertainty has brought its outlook more in line with the rest of the regi
130、on,at 7.6%(2022-27E).In absolute terms,North America and APAC are expected to drive 75%of worldwide new wealth creation until 2027.Exhibit 10:Global Household Financial Wealth by Region$TN,2021-27E3%4%3%4%16%6%6%5%17%17%15%17%30%31%32%29%44%44%46%43%202120222027E2023E-4%+7%+6%6.0%8.3%4.0%
131、6.9%5.0%RegionGrowth 2122CAGR 2227E Latin America6.0%6.0%Middle East+Africa7.0%8.2%Europe-3.6%4.0%APAC-0.8%7.4%North America-8.0%5.1%CAGR 2327E Notes:Wealth is defined as investable personal financial assets including investable assets(deposits,equities,bonds,mutual funds and alternatives),excluding
132、 assets held in insurance policies,pensions and direct real estate or any other real assets.Numbers for all years were converted to$at the year-end 2022 exchange rates to exclude the effect of currency fluctuations.Excludes low mass affluent segment($50 million in assets,which is the fastest-growing
133、 segment,forecast to increase at 7%annually in the next five years.This translates to an increase of around$25 billion in new revenues from 2022 to 2027,or more than a third of total global wealth growth(Exhibit 11).Although UHNWIs are projected to experience the highest growth,affluent clients(with
134、 50 MMTotal wealth 2027E,TNCAGR(2227E)5%6%7%Share of total39%27%34%Total revenue 2027E,BNCAGR(2227E)Share of total57%28%15%27020605045306040202220232027ESource:Oliver Wyman Global Wealth Pools ModelProfitability facing structural headwinds given wage inflation and recent AuM pullback,coup
135、led with higher funding costs After a decade-long bull market,the wealth management industry is now encountering a more challenging market environment,with structural headwinds hitting both the revenue and cost sides.The recent decrease in revenues has been largely driven by drops in AuM and loan vo
136、lumes,as well as a significant reduction in transaction vol-umes as clients have remained on the sidelines.This revenue slow-down,combined with strong wage inflation driving costs up,has accelerated profitability headwinds.Capturing net new money(NNM)is critical to winning in this environment.Higher
137、 rates are a double-edged sword that the wealth management industry needs to actively manage.Recent increases in interest rates and continued market uncertainty have led to a shifting of client sweep deposits into higher-yield liquidity products like high-yield savings,money market funds,and Treasur
138、y bills,which has slowed net interest income(NII)growth or reduced NII as funding pressure accelerates.Of course,retaining these flows internally is critical,and revenues can be recaptured as fees.We recommend that wealth managers whose funding over-indexes to low-cost sweep deposits ensure they are
139、 prepared for a higher-for-longer interest rate envi-ronment as deposit betas tend to rise until the Fed cuts rates.Additionally,this cycle could drive higher-for-longer deposit betas given that the Fed is engaging in quantitative tightening that is shrinking deposits by 3%a year,which was not a fea
140、ture in prior rate hike cycles.Over the past several years,the majority of wealth managers have done a good job managing through a declining revenue margin envi-ronment,keeping expense growth just below revenue growth,driving down the cost/income ratio(Exhibit 12).Considering the uncertainty of the
141、current market environment creating the“perfect storm”on both the revenue and cost sides,the majority of wealth managers will likely face lower profitability margins going forward and will need to focus not only on retaining flows but on attracting NNM to compensate for rising costs,be it higher fun
142、ding cost-driven expenses or higher labor expenses.Additionally,a key focus on costs,incrementally benefiting from economies of scale and leveraging technology and AI,will be key.Exhibit 12:Revenue Margin and Cost-Income RatiosSample of large global wealth managers($200 billion AuM)across Europe,Nor
143、th America,and APACSimple average,bps(for revenue margin)2002120222023H14.8%Revenue4.5%CostCAGR 67876-16%73%73%70%73%71%Cost-income ratio69%Note:Sample includes 15 of the worlds largest wealth managers with$200BN AuM,a focus on HNW clients and headquarters across Europe,North A
144、merica and APAC.Source:Oliver Wyman Wealth Management Benchmarking ModelLooking forward,following recent interest rate hikes we expect a continued pickup in deposit betas that exceed prior cycles.This cycles unique funding challenges include an increase in loan growth fueled by inflation,combined wi
145、th an outflow of deposits fueled by quantitative tightening.In addition,the wealth management industry faces increased competition in the market,as well as the focus on high net worth(HNW)and quasi-institutional ultra-high net worth(UHNW)clients who expect a greater pass-through of rate increases.Wh
146、ile overall deposit betas across the banking landscape in Europe have remained relatively low,going forward we expect this M BluePaperMorgan Stanley Research15trend will likely limit the upside available to the majority of global wealth managers from rate hikes.In fact,we are already seeing head-win
147、ds picking up in the first half of 2023 and taking away cyclical NII tailwinds.Market performance remains a primary driver of growth for the wealth management industryThe bear market in 2022 serves as a strong reminder that the wealth management industry must take a more proactive role in steering i
148、ts course of growth.Leading wealth managers will have a multipronged strategy for generating NNM growth.Between 2015 and 2022,NNM contributed 70%of overall AuM growth for a sample of large global wealth managers(i.e.,with AuM$200 billion).This is primarily driven by the large negative asset performa
149、nce in 2022.Throughout the period,net inflows were positive but relatively low,averaging a mere 2.5%to the growth of AuM each year(Exhibit 13).While leading wealth managers have been working to generate NNM to reduce their dependence on market volatility,data suggests that a lot more needs to be don
150、e across wealth industry firms to reduce the impact of market performance on growth.The consequence of this dependency is that the industrys perfor-mance and productivity face pronounced pressures during market downturns.Based on the same sample of wealth managers,analysis of advisor productivity re
151、veals that advisor loading in terms of AuM has also largely been driven by market performance,as opposed to NNM(Exhibit 14).Amid this dynamic,leading wealth managers are embarking on initiatives that empower them to exert greater control over their growth trajectories.Exhibit 13:Global AuM Growth Co
152、mposition Sample of large global wealth managers,%4132-0020202616-142-4NNMPerformanceNote:Sample includes 15 of the worlds largest wealth managers with a focus on HNW clients and head-quarters across Europe,North America and APAC.Source:Oliver Wyman Weal
153、th Management Benchmarking ModelExhibit 14:Advisor Productivity Sample1 of large global wealth managers,indexed to 20820212022AuM per Advisor(including net new money only)AUM per Advisor(overall including performance)Yearly total Return-Market portfolio98100Number of
154、 Advisors2Indexed to 2019:5%reduction from %10%9%-13%Notes:1.Sample includes 15 of the worlds largest wealth managers with a focus on HNW clients and headquarters across Europe,North America and APAC.2.Represents total number of advisors for in-scope wealth managers indexed to 2019 to
155、 show how advisor numbers have changed from 2019-2022 on a relative basis.Source:Oliver Wyman Wealth Management Benchmarking ModelM BluePaper162.Getting on the Right Side of the Big Sort:Asset ManagersThe combination of persistent stress on asset manager operating models,the fading of macroeconomic
156、tailwinds that have benefitted all,and revolutionary changes ushered in by Gen AI has created con-ditions that will raise the competitive bar and prompt a“Big Sort,”causing a large gap to emerge between leaders and laggards.The market rebound in the first half of 2023 has provided some relief from t
157、he sharp dip in 2022,and helped to pad the results of all firms,but the structural challenges in the industry remain.Profitability is highly susceptible to future market turbulence,ongoing fee com-pression,and rising operational costs,while organic growth remains elusive for many.Being on the“right”
158、side of the“Big Sort”means addressing the structural fragilities of the operating model to build resiliency while taking targeted actions to drive profitable growth.We see three key plays:1.Fuel the active management engine to win share2.Optimize pricing to capture more of the economics in the insti
159、tutional segment3.Reset the operating model to build resiliency and provide a platform for growthIt is worth noting that Gen AI(assuming the technical infrastructure,governance,and resource models necessary to fully exploit its trans-formative power is built)could help supercharge the impact of thes
160、e actions.We discuss this in detail in Section 4,where we explore suc-cess criteria,key use cases,and potential benefits that Gen AI can bring to asset managers as they integrate these capabilities into their businesses.2.1.Fuel the Active Management Engine to Win ShareThe rise of passive investment
161、s at the expense of active management has been the single most disruptive trend to the asset management industry over the last 20 years.The trend has largely continued unabated,with core active steadily losing share to passive,falling from 60%of traditional long-only AuM in 2017 to 55%at the end of
162、2022(excluding money market funds).We expect this trend to con-tinue,with core active assets falling below 50%by 2027 for the first time in history amid the persistence of underlying drivers across retail and institutional channels,including scrutiny on fees and value for money,lack of demonstrable
163、alpha on average across the industry,and the shift to core passive-satellite constructs.The bright spots in core active management have been limited,with positive inflows in some fixed income strategies due to higher rates,top-per-forming equity strategies,as well as in APAC markets,which tend to be
164、 less efficient and mature in their index-tracking infrastructure.Exhibit 15:Shift in Proportion of Assets from Core Active to Passive$TN60%57%55%54%49%40%43%45%46%51%20H 20232027E5374616580PassiveCore activeNote:Excludes money market funds,solutions,private markets and hedge funds.Source
165、:Oliver Wyman Asset Management modelThe relentless trend toward passive has been driven by many factors;chief among them is that active management has not been able to consistently demonstrate its value-add.While specific firms and strategies have performed well,the overall industry has not been suc
166、cessful,which can tarnish the reputation of active management and perpetuate the movement toward passive.As Exhibit 16 shows,on average,for nearly all major strategy categories,actively managed products have struggled to beat passive equivalents across 1-,3-,and 5-year horizons at an overall industr
167、y level,with only two exceptions over the last year.M BluePaperMorgan Stanley Research17Exhibit 16:Actively Managed Funds vs.Passive FundsAs of Dec.2022,%of actively managed funds that outperformed corresponding passive strategiesUS Large BlendWorld Large BlendDiversified EMEuropeCorporate FIHigh Yi
168、eld25%30%35%40%45%50%55%60%65%15%20%1-yr1-yr1-yr3-yr5-yr5-yr3-yr3-yr5-yr5-yr1-yr3-yr5-yr3-yr1-yr1-yr3-yr5-yrSource:Morningstar,Oliver Wyman analysisThat said,we see significant opportunity ahead for firms that can cap-ture share despite persisting secular challenges.Money-in-motion(i.e.,reallocation
169、s within the active space)create a battlefield for active asset managers that cannot be ignored.According to our anal-ysis,we estimate that the flows between core active funds are more than three times that of net flows into passive funds(Exhibit 17).In other words,for every$1 outflow to a passive f
170、und from an active fund,there are approximately$3 in flows between core active funds available to be captured by active managers.Exhibit 17:Flows Between Funds(Flows Between Core Active Funds vs.Inflows into Passive)2021-22,%of 2022 industry AuM1.3%0.0%2.3%0.7%2.9%1.2%Flows between active fundsFlows
171、 into passive funds6.5%1.9%3XOthersFixed incomeEquitySource:Broadridge,Oliver Wyman analysisWhile common wisdom is that performance drives flows and there is certainly a lot of truth to this it is not the sole factor.Our research shows that,in addition to“performance alpha,”there are several other s
172、ources of“alpha”that managers can generate to drive stronger flows,namely:“Product innovation alpha”“Distribution and service alpha”“Fee alpha”Product Innovation Alpha In the active fund world,youth is king.In our analysis of total active fund industry flows,we find that younger funds consistently a
173、ttract more inflows(Exhibit 18),while this trend is less prominent for pas-sive funds.This could be driven by a few factors,including focused marketing efforts,targeted distribution incentives and support,ability of newer funds to meet current investor demand gaps,and the inherent advantages of not
174、having a back book that could suffer from large redemptions.Exhibit 18:Global Active Mutual Fund Net Flows by Age of Funds,excl.Money Market Funds$BN118 135 309 29 12 13491274-175-35-425-58523-0202120222023 Jun100 131 217 180 111 151 90 109 69 72 211 14 127 120 88 200222023
175、 Jun2-4 years5-9 years9+yearsActive mutual fundPassive mutual fund&ETFSource:Broadridge,Oliver Wyman analysisA good example of this dynamic played out in 2020 and 2021 as inno-vation in responsible investing and thematic funds saw significant market share gain at the expense of broader core active.I
176、nflows into responsible investing and thematic funds relative to traditional equity funds widened as investors switched from conventional funds M BluePaper18to newer,in-demand strategies(Exhibit 19).These were,of course,unique times in terms of the demand for responsible and thematic funds,but manag
177、ers able to bring credible products to market clearly had a leg up in meeting this spike in demand.While the regional varia-tions in flows to ESG products between the Americas(where the topic has become politicized and flows are weaker)and Europe(where policy support and flows continue to be strong)
178、have been well documented,investors everywhere remain keen to weave risks and opportunities,such as energy transition and energy security,into their portfolios.Managers stand to reap significant benefits if they can innovate and get credible products to market quickly that address this demand.Exhibi
179、t 19:Global Active Mutual Fund Net Flows over AuM by Strategy,excl.Money Market Funds%out of year-end AuM of each strategy3%6%8%-3%0%0%11%10%-2%-2%-4%-2%1%-5%-2%200222023 JunResponsible investingEquities sector&themesEquitySource:Broadridge,Oliver Wyman analysisLooking forward,active ETFs
180、,while not new,may be at an inflection point in terms of growth.Active ETFs are still small in absolute size(1%of total fund market),but they have grown at a CAGR of 35%from 2020 to 1H23.Given the relative nascency of the market,there is also greater opportunity for early innovators to differentiate
181、 them-selves and capture share.Relative to the passive ETF market,which is highly concentrated in just a handful of providers(the top 3 account for 61%),the active ETF market is more fragmented,with the top 3 providers accounting for only 18%.5Central to an organizations ability to create innovative
182、 products and get them to market is the strength of its product management func-tion.As the“bridge”between distribution and portfolio manage-ment,this function combines insights about client demands from the 5 Source:Broadridgefield with an understanding of portfolio management capabilities.Leading
183、product management functions bring these two sides together to rapidly conceive,design,seed,and launch products into the market to drive flows and capture the“product innovation alpha”that comes from being in the market at the right time with the right product.Distribution and Service Alpha Very few
184、 firms can consistently deliver top performance,so winning share requires most managers to enhance their“softer”capabilities,particularly around distribution and client service.Our analysis of individual asset managers reveals large variations in flows that are not accounted for by performance diffe
185、rences.In other words,after controlling for performance,some managers are still significantly stronger in terms of the flows they are able to generate(or retain).To assess this,we looked at the active mutual funds of 10 major strat-egies from a large number of managers and analyzed the recent flows
186、of funds that were in the lower three-year performance quartiles.We then divided their AuM into those that had higher-than-average and lower-than-average flows.The disparity among man-agers was clear:Those that were most effective had a much higher proportion of AuM in funds that attracted better-th
187、an-average flows despite low performance,while the least effective were largely losing flows to others,as shown in Exhibit 20.Exhibit 20:Sample of Asset Managers Active Mutual Fund AuM by Fund Performance and Flows%of total 2022 AuM of each select managers,across 10 major strategiesMost effective ma
188、nagersLeast effective managersAverage flow/AuM of all managersUp to 15x more AuM in higher flow funds than lower flow fundsUp to 10 x more AuM in lower flow funds than higher flow funds59%4%75%10%85%14%34%11%55%13%48%12%65%6%57%22%12341234Bottom 3 quartile performance,lower-than-average flowsBottom
189、3 quartile performance,higher-than-average flowsNote:10 major strategies include Global Equity Large Cap,Global Fixed Income,US Equity Large Cap Blend,US Equity,Small Cap,US Fixed Income,Europe Equity Large Cap,Europe Fixed Income,Global Emerging Markets Equity,Emerging Markets Fixed Income,Moderate
190、 Allocation.Source:Morningstar,Oliver Wyman analysisM BluePaperMorgan Stanley Research19There are potentially many underlying factors driving these results.Based on our experience,however,a few factors can have a very sig-nificant influence on capital allocation and retention decisions,driving a sig
191、nificant amount of“distribution and service alpha;these include coverage quality of intermediary networks,depth of relation-ships with investment consultants,ability to offer enhanced advisory“solution”services across wealth and institutional channels,and having captive distribution or strategic dis
192、tribution relationships.Fee AlphaAsset managers have long been judged on their ability to outperform benchmarks,and ex-post net returns remain a crucial criterion for investors.Indeed,according to Morningstar data,only active mutual funds with the highest Morningstar rating of 5 were able to achieve
193、 positive inflows or close-to-zero outflows on an aggregated basis over the last one year and three years.6Investors seem to have little hesitation in pulling out from active funds that underperform.6 From 2022 to 1H23,and 2020 to 1H23,respectively Beside ex-post net performance,data suggests that i
194、nvestors are increasingly factoring in fee levels when deciding to invest and/or redeem.When comparing active mutual funds within the same strategy and in the same performance deciles,funds with lower fee levels tend to attract more flows or defend outflows better than those with higher fees.This tr
195、end is largely consistent across the major fund strategies globally,as highlighted in Exhibit 21.7The analysis compares 2022s net flows relative to total AuM for funds by their fee levels and three-year performance decile as of year-end 2021(with the logic being that flows in 2022 were,in part,deter
196、mined by the prior three-year performance track record from 2018 to 2021).This phenomenon may be driven by an investor psychology that prefers ex-ante certainty of“fee alpha”today relative to the uncertain ex-post potential of investment performance alpha tomorrow.7 The one exception is Europe Equit
197、y Large Cap where very high inflation,the Russia-Ukraine War,and tightening monetary policies caused investor sentiment to change and resulted in steep outflows from some large funds focused on growth investing.M BluePaper20Exhibit 21:Net Flows and AuM Split by Performance and Fees by Selected Strat
198、egy2022 Net Flows/AuM5.4%2022 Net Flows/AuM1.2%2022 Net Flows/AuM-5.4%2022 Net Flows/AuM-2.3%2022 Net Flows/AuM-3.9%2022 Net Flows/AuM-11.7%2022 Net Flows/AuM-18.6%2022 Net Flows/AuM-13.8%US Equity Large Cap Blend(Active)n=2637 fundsUS Fixed Income(Active)n=4891 funds2022 Net Flows/AuM-26.3%2022 Net
199、 Flows/AuM-4.6%2022 Net Flows/AuM-7.2%2022 Net Flows/AuM-11.5%2022 Net Flows/AuM5.2%2022 Net Flows/AuM-9.7%2022 Net Flows/AuM-13.3%2022 Net Flows/AuM-10.0%Europe Equity Large Cap(Active)n=4244 fundsEurope Fixed Income(Active)n=4941 funds2022 Net Flows/AuM-1.9%2022 Net Flows/AuM-14.3%2022 Net Flows/A
200、uM-14.7%2022 Net Flows/AuM-11.7%2022 Net Flows/AuM-8.2%2022 Net Flows/AuM-11.8%2022 Net Flows/AuM-21.4%2022 Net Flows/AuM-21.3%Global Emerging Markets Equity(Active)n=2756 fundsGlobal Emerging Markets Fixed Income(Active)n=2974 fundsHigh 3Y Performance as of 2021(1st decile)Low 3Y Performance as of
201、2021(2nd 9th decile)High 3Y Performance as of 2021(1st decile)Low 3Y Performance as of 2021(2nd 9th decile)Net Flows/AuM X%Shaded area 2022 AuMKey:Low Fees(below average)High Fees(above average)Low Fees(below average)High Fees(above average)Low Fees(below average)High Fees(above average)Source:Morni
202、ngstar,Oliver Wyman analysisThis is obviously a balancing act.Discounting fees may drive or help retain future flows,but it also reduces profitability.In an environment of net negative flows to core active strategies at the industry level,however,the calculus is relatively clear:Given mediocre-to-po
203、or performance,reducing fees up to the point of generating negative margins may be a winning strategy(at least at an individual firm level,on a relative basis)as the flow benefit(either in attracting net inflows or preventing outflows)can offset margin compression.Those with higher-performing funds
204、need also to consider the trade-offs between potentially greater flows by lowering fees and the impact to margins and the capacity available across different fund strategies.M BluePaperMorgan Stanley Research212.2.Optimize Institutional Pricing:Strategic Pricing Can Lead to Material Gains in Revenue
205、 CaptureThe average fee levels across mutual funds and ETFs have seen signif-icant declines over the past decade,primarily driven by investors increasingly switching to cheaper index/ETF-based products and funds cutting fees.This switching to lower-fee passive funds was pro-nounced in 2022,as many a
206、ctive fund strategies underperformed passive equivalents.Institutional segregated mandates have also faced fee pressures over the past decade.Given the negotiated nature of institutional mandate pricing(Exhibit 22 highlights quoted segregated mandate fees against actual fees paid by institutional in
207、vestors),we see significant opportunity for revenue uplift by applying a more disciplined,optimized approach.At first glance,the reduction in asset managers quoted segregated mandate fees appears less pronounced than for mutual funds/ETFs.However,as highlighted in Exhibit 22,this excludes the impact
208、 of discounting that is commonplace as asset managers compete for growth.Exhibit 22:2022 Median Fees of Active Strategies,bps for$100 Million Segregated Mandates 463058806250262653755748GlobalHYGlobalCreditEuropeEquityincl.UKEmergingMarketsEquityGlobalEquity(Core)US LargeCap Equity(Core)-43%-13%-9%-
209、6%-8%-4%2022 Quoted2022 Actual1Note:1.2022 Actual figures are an average of fees paid by institutional investors based on data gathered by the investment consultant,Mercer,2022 Quoted figures are rack rate quotes from asset managers.Source:Mercer Fee Surveys,Mercer Insights,Oliver Wyman analysisTher
210、e are several pricing considerations asset managers assess to“seal the deal,”including:1.Capacity of the investment strategy:Where high-capacity strategies,(e.g.,global equities,sovereign bonds,etc.)are discounted on a sliding scale(i.e.,larger mandate=larger dis-counts).2.Client scale:Larger client
211、s that can bring scale are more cost-effective to serve(e.g.,lower marketing costs,lower sales costs,lower operational complexity of managing single client accounts versus a broad set of smaller accounts,etc.).This makes them desirable targets,with asset managers offering significant discounts to at
212、tract them.3.Cross-selling/stacking:Similar to client scale,servicing a single client across products is more cost-effective,with some of those cost benefits passed on to clients as part of cross-selling efforts.4.Product nascency:New product launches,or products from asset managers with limited tra
213、ck records,are typically dis-counted to attract initial flows.5.Market/geography nascency:As with new product launches,entering new markets/geographies can initially be challenging for asset managers,who frequently offer intro-ductory fee discounts as they build credibility and a track record.6.Prod
214、uct demand:In challenged markets,or in cases where there has been a dip in performance,asset managers may offer reduced fees to attract flows.The scale and extent to which these pricing considerations are applied can vary widely,with rack rate discounts ranging from 5%to 95%,depending on strategy,as
215、 illustrated in Exhibit 23.This is pri-marily driven by the underlying competitive intensity and cost struc-ture of the strategies.For example:Passive strategies face fierce pricing competition,while also benefiting from economies of scale,allowing asset managers to offer significant fee discounts(9
216、0%+in some cases,or even free mandates).Emerging market strategies come with cost considerations for asset managers(e.g.,the need to have on-the-ground teams across various geographies to source,assess,and manage investment opportunities),limiting the scale of dis-counts offered.Liquid alternatives
217、are generally more capacity constrained with higher demand,which limits investor bargaining powers in some cases,negating the need for asset managers to offer significant discounts.M BluePaper22Exhibit 23:Extent of Fee Discounts by Strategy 95%5%Global Low Volatility Equity UCITS Liquid Alternatives
218、 Unconstrained Diversifying Alternatives Emerging Market Debt Active Global Equity Emerging Markets Equity Sustainable Global Equity Passive Global Equity Passive Emerging Market Equity Passive Sovereign Debt Cash EUR Global Bonds Source:Mercer OCIOManagers are at different ends of the spectrum in t
219、erms of their abili-ties to incorporate the factors above into a robust pricing framework.Managers,particularly those with larger institutional client bases,who have faced persistent price deflation and service-level inflation,need to adopt more analytical and systematic approaches to help them coun
220、ter these challenges.We see six key components to a best-in-class pricing capability that can help asset managers improve pricing discipline and revenue capture(Exhibit 24).Exhibit 24:Components of a Best-in-Class Pricing Capability at Asset Managers Best practiceMinimum standard=Industry average=Le
221、ading playersPricing Strategy1 Clear understanding of value-for-money and pricing proposition Pricing strategy aligned with sales narrative and strategic prioritiesImplementation2 Dedicated price and discount management tool to support decision making Good understanding and application by sales staf
222、f and beyondOngoing Control3 Dedicated process to support front staff in reviewing fees and discounts regularly;identify cross-sell/upsell opportunities Detection of low performing accounts and root-cause identificationGovernance and Process4 Centralized governance framework for discount approvals D
223、isciplined pricing process with clear KPIs and close involvement of investment managers,finance and sales People,Culture and Incentives5 Established dedicated pricing team Dedicated trainings to embed pricing philosophy Incentives aligned to client relationship profitability Data/Optimization6 Full
224、transparency on margins,client and product profitability Systematic collection of data on clients value drivers and/or willingness-to-pay and negotiation budgetsSource:Oliver Wyman M BluePaperMorgan Stanley Research23To help institutionalize the process,leading asset managers have established dedica
225、ted pricing teams who run disciplined pricing pro-cesses with clear KPIs and engage closely with investment managers,finance,and sales.They also support ongoing post-sale monitoring to detect lower-performing accounts and identify cross-sell/upsell opportunities.Sales teams,meanwhile,are supported b
226、y pricing and discount management tools that leverage data on clients value drivers and willingness to pay.Many asset managers,especially the least disciplined when it comes to pricing,have large pricing dispersions across their managed accounts.The fees charged for the same institutional mandate st
227、rategy can vary widely across client accounts(e.g.,profit margin ranging from 50%to-200%),as illustrated in Exhibit 25.Asset man-agers are leaving money on the table.While there will always be an element of dispersion given the different pricing considerations enu-merated earlier,more disciplined ap
228、plication would suggest a much narrower band.Taking the example of a generic$500 billion man-ager that has an unnecessarily large dispersion,and extrapolating a subset of the managers mandate data to cover its entire portfolio,suggests that applying the more disciplined,optimized approach noted in E
229、xhibit 24 could yield a$50 million revenue uplift.We acknowledge this assumes the manager can successfully renegotiate the back book across all mandates toward a breakeven curve(i.e.,at margin);that task could be challenging to accomplish entirely,but even partial success could make a meaningful dif
230、ference.Exhibit 25:Illustrative:Segregated Mandate Fees for a Select Strategy AuM in$MM,fee in bps0100 200 300 400 500700 800 900 1,000040Fees in bpsMoney left on the table$50MMBreakeven curve(margin)For a given mandate size,clients may pay different fee rates depending on any one of the
231、various factors highlighted in this section50%-200%250%Range in profit marginMandate size,$MMSource:Oliver Wyman analysis2.3.Reset the Operating Model to Build Resiliency and Provide a Platform for Growth The immediate sell-off that occurred at the onset of the COVID-19 pandemic in 2Q20,while short-
232、lived,serves as a cautionary tale for asset managers by highlighting the fixed nature of their cost base.The rapid rebound following the start of the pandemic hid underlying fragilities as asset managers quickly shifted their focus to new ways of working.The 2022 market downturn once again showed th
233、at asset managers continue to face the same challenges:tremendous downside exposure to markets on the revenue side,but with stub-bornly high/growing cost bases.Exhibit 26 illustrates this relation-ship for North American and European traditional asset managers,with profit margins dropping from 41%in
234、 4Q21 at the market peak to 37%in 1Q22,a 10%drop in a matter of months.Exhibit 26:AuM,Revenue,and Cost of Traditional Asset Managers Indexed to 1Q19 2019-2Q23;based on 28 publicly listed traditional asset managers in Europe and North AmericaMarket volatilityCOVID hit7%7%CAGR 19-23Q211%-19%-8%0%21Q4
235、22Q3-11%-7%0%19Q4 20Q136%31%41%37%34%37%34%AuMRevenueCostQuarterly Operating margin%COVID hitMarket volatility-14%-10%200222023Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2900140150160Source:S&P CapIQ,Morgan Stanley,Company Filings,Oliver Wyman analysisThese cost challe
236、nges are driven by several factors.Post-COVID-19 competition for employees intensified,causing a steady increase in employee wages,and at the same time,many asset managers increased salary bands in line with or close to inflation(300-400 bps compression on operating margins).Inflation further affect
237、ed other contracted services,including outsourced middle-/back-office ser-vices(30-40 bps impact on costs)and data(20-30 bps impact on cost),where fees tend to increase with inflation.Additionally,in prep-M BluePaper24aration for several emerging regulatory requirements across jurisdic-tions,asset m
238、anagers have invested in enhancing operating models(at a cost).For example,several emerging sustainability disclosure requirements,such as the UKs Sustainability Disclosure Requirements(SDR),the EUs Corporate Sustainability Reporting Directive(CSRD),and the United States Enhancement and Standardizat
239、ion of Climate-Related Disclosures for Investors,will require global asset managers to acquire the necessary ESG data and develop new reporting and compliance processes to comply with these reporting standards.In comparison,private market asset managers have enjoyed rela-tively consistent fees and g
240、rowing revenues.This is principally a ben-efit of AuM not being affected by mark-to-market(MtM)fluctuations that traditional asset managers contend with and the steady market demand they have enjoyed.However,as depicted in Exhibit 27,pri-vate market asset managers overhead costs and fee-related expe
241、nses have risen at the same rates as revenues excluding carry,highlighting both the aggressive investments these firms are making to pursue growth opportunities and the hurdles they face in scaling.Additionally,private market asset managers were not immune from the recent market volatility,with oper
242、ating margins decreasing to 47%in 2Q23(close to what they were at the depths of COVID-19),highlighting the delayed market impact on private market players financials versus traditional peers that were affected more immedi-ately.Exhibit 27:AuM,Revenue,and Cost of Private Market Asset Managers Indexed
243、 to 1Q19 2019-2Q23;based on 9 publicly listed private market asset man-agers in Europe and North AmericaMarket volatilityCOVID hit25%33%CAGR 19-23Q233%500300350Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2AuMRevenueCostQuarterly Operating margin%50%45%56%53%COVID hitMarket volatil
244、ity49%49%47%200222023Source:S&P CapIQ,Morgan Stanley,Company Filings,Oliver Wyman analysisExhibit 28:Operating Margin Evolution of Asset Managers2019-2Q23;based on 37 publicly listed asset managers in Europe and North AmericaTraditional AMsTraditional AMs with Alts business1Alternative AM
245、sMarket volatilityCOVID hit-29%-17%CAGR 19-23Q2-16%0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2200222023Note:1.Where an Asset Manager has minimum 10%of total AuM in Alternative assets.Source:S&P Cap1Q,Morgan Stanley,Company Filings,Oliver Wyman AnalysisInterestingly,t
246、raditional asset managers who have built meaningful alternatives businesses(assumed to be where 10%of AuM is in alternatives)as part of their strategy to enhance profitability,look worst in terms of operating margin(refer to Exhibit 28).While we do not suggest that firms stop pursuing faster-growth
247、and higher-margin business segments,such as private markets,we believe that successfully evolving operating models with public and private businesses carries inherent complexity,particularly when built up through acquisition.Hence,we see some cases where such models have not delivered the desired gr
248、owth or profitability improvements.This trend may be an idiosyncrasy of the specific firms covered in our analysis,as many traditional players that are pursuing the alternatives businesses face some of the biggest challenges with their legacy businesses.Nevertheless,it is still indicative of what we
249、 have witnessed in the market,as these combined models can be inhibited by several issues:1.Increased operational complexity:Alternatives often encompass a wide range of investment strategies,with unique operational and reporting requirements,due dili-gence processes,and risk management consideratio
250、ns,which tend to limit the ability to consolidate corporate and support functions(e.g.,risk,legal,accounting).2.Increased technology/systems costs:No single system handles both liquid and illiquid asset classes seamlessly,resulting in more disjointed technology stacks,increased data and vendor costs
251、,more complex data environments,and typically a lot of end-user computing-based solutions(i.e.,spreadsheets).M BluePaperMorgan Stanley Research25targets of 5-15%.Indeed,we contend that asset managers adopting more aggressive strategies can achieve cost savings of 20-40%by making difficult choices to
252、 trim their structural cost base,such as exiting underperforming markets and segments,and by embracing a“virtual”model,relying more on remote work and technology to power the business.While a key benefit is operational efficiency,these programs will also allow asset managers to reinvest some of the
253、savings in growth areas,like building out private market capabili-ties or investing in nascent technologies like Gen AI that have the potential to further boost efficiency and free up capacity to drive incremental revenue.As illustrated in Exhibit 29,asset managers have four primary sets of“levers”t
254、hey can pull to optimize their business to structurally increase operating margins and build greater resilience in their oper-ating models.We provide estimates of the potential that each of these primary sets of levers can have in optimizing the respective cost base,based on our experience working w
255、ith asset managers.3.Lack of cultural cohesion and disjointed go-to-market approach:Silos and fiefdoms tend to proliferate between different parts of the business,making collaboration and standardization more difficult.The need(or preference)to maintain multiple distribution organizations(as sales t
256、eams of traditional managers are often not equipped to effectively sell private market products)and even distinct recruiting efforts can increase complexity and costs.Embarking on operational efficiency and cost programs to rein-vest in growth Asset managers will always be beholden to market perform
257、ance to some extent;however,a key question for managers is how to con-struct their operating model such that for any level of the market,operating margins remain as high and as resilient as possible.Therefore,it is not surprising to see many organizations announcing ambitious operational efficiency
258、and cost programs with cost saving M BluePaper26Exhibit 29:Four Primary Sets of“Levers”to Drive Operational Efficiency and Decrease CostsOverall cost1(average,bps)Tradl.25Mixed30PM70Sales and client serviceMid and back officeInvestment and research30 40%30-40%20-40%Typical cost structureDe-scopingOr
259、ganisational effectiveness/simplificationWorkforce managementThird party cost managementSimplify/scale back underperforming productsCut tail-end funds/share classesIntroduce client/service level tieringOptimise real estate footprint e.g.,sub-let underutilised footprint,renegotiate new lease terms,cl
260、osure of offices Review terms of existing managed capacity relationships and negotiate competitive termsOptimise sourcing/utilities model and consolidate vendorswhere feasibleRationalise data providers and review existing contracts;establish single source market,trade,client and reference dataSenior
261、ity adjustments/reduce overall cost per seat e.g.,keeping roles in the organisation,but reducing the management levelthose roles would typically commandOutsource non-critical services to capable providers and optimise resource modelReassess employee location model e.g.,shifting middle/back-office ro
262、les to lower locations Eliminate duplicative roles within divisions or cross-divisions e.g.,centralise trade execution,marketing,procurement,etc.Eliminate hierarchy inefficiencies and increase spans of control e.g.,merging teams,reducing micro-teams(Managers of none/one)Headcount reduction where act
263、ivities/roles are no longer required,or where a function is overstaffed based on current/planned activitiesStreamline front to back processes e.g.,product and client onboarding,reporting(MI,client),handoffs between departments/international businesses,automation tools to enhance efficiency of teams
264、to focus on value-add services/clientinteractionsExit underperforming business unit/client segment/region Simplify legal entity structure e.g.,close or merge underutilised legal entities to reduce operational complexity,regulatory licensing feesIncrease internal end-user self-service e.g.,tools,trai
265、ning,policy summaries,FAQs(Wiki tool)Reduce discretionary roles e.g.,PMO,change,businessmanagementRationalise IT applications e.g.,consolidate to fewer applications and sun-set legacy applicationsReassess employee location model e.g.,shifting non-client facing roles to lower cost locations 5 10%5 10
266、%5%5 15%Typical cost save range2Notes:1.Based on 37 publicly listed asset managers in Europe and North America.2.Realized cost saves(excluding potential benefits from Gen A1),as percentage of respective costs,through application of a range of levers within each bucket;based on project experience.Sou
267、rce:Oliver WymanM BluePaperMorgan Stanley Research27Within these four sets,there are specific levers that asset managers can pull to achieve targeted operational efficiencies and cost improvements.Some of these are firmwide(e.g.,exiting underper-forming business units/products/regions),while others
268、are targeted to specific areas of the business(e.g.,reducing discretionary roles,such as PMO,change,and business management).Given the complexity of some asset managers organizations,a single lever(e.g.,spans and layers or nearshoring)is rarely sufficient to reap the full efficiency potential.In our
269、 experience,asset managers need to use a wide set of levers to meet their efficiency goals.While one lever may be right for some functions,it may not work for others.In Exhibit 30,Exhibit 31,and Exhibit 32,weve estimated the cost sav-ings available to asset managers that can successfully pull a comb
270、ina-tion of levers across the value chain.Note that we have also added a view on where we believe the revolutionary capabilities of Gen AI can further supercharge“traditional”levers,which we believe will be weighted more toward front-office activities.We discuss use cases and the potential impacts o
271、f Gen AI on the industry in greater detail in Section 4.Exhibit 30:Estimated Cost Savings:Sales and Client ServiceBased on typical AM with$500BN AuM Bps of average AuM56%10%14%14%7%TodayTraditional leversGen AI boost67%7%9%11%6%TomorrowLeading AMs3-4(0.5 1.5)+2-3+-25-30%Translation to cost saves is
272、uncertainIllustrative-Not to scale+Efficiency boost from Gen AI explored in Section 425-30%cost savesSub functionCost saves(%)Sales5 15Sales support&client service40 60Marketing40 60Product development&mgmt.30-50Other(e.g.,business dev.)30-50Source:Oliver Wyman analysisM BluePaper28Exhibit 31:Estima
273、ted Cost Savings:Investment and ResearchBased on typical AM with$500BN AuMBps of average AuM69%9%9%14%TodayTraditional leversGen AI boost75%7%8%10%TomorrowLeading AMs6-10(1 2)+5-8+-15-20%Illustrative-Not to scaleTranslation to cost saves is uncertain15-20%cost saves+Efficiency boost from Gen AI expl
274、ored in Section 4Sub functionCost saves(%)Portfolio mgmt.5 15Research analysis30 50Trading20 30Other(e.g.,Admin,PMO)30 50Source:Oliver Wyman analysisExhibit 32:Estimated Cost Savings:Mid-and Back Office Based on typical AM with$500BN AuMBps of average AuM35%29%35%TodayTraditional leversGen AI boost3
275、8%26%36%TomorrowLeading AMs8-9(2.5 3.5)+5-6+-30-40%Illustrative-Not to scale30-40%cost saves+Efficiency boost from Gen AI explored in Section 4Sub functionCost saves(%)Tech.App.development10 30App.support&help desk30 40Network and Data20 30Other(e.g.,PMO)40 50Ops.Client onboarding40 60Trade,sett.&cu
276、stody30 50Servicing and reporting30 50Other (e.g.,change)40 50Business mgmt./SupportRisk&Compliance,Audit10 20Finance20 30Human Resources20 30Other(e.g.,facilities)40 50Translation to cost saves is uncertainSource:Oliver Wyman analysisIt is a challenge to run an operational efficiency and cost progr
277、am that results in sustainable change,as asset managers look to effec-tively navigate the ship in business as usual(BAU)mode while imple-menting transformative change at the same time.In our experience,the imperatives for a sustainable operational efficiency and cost pro-gram include:Use top-down ta
278、rgets informed by benchmarks to set the North Star for functions:Rapidly align on overall ambition and how to meet it;affirm the areas you want to grow and invest in and get execu-tive level buy-in.Use bottom-up detailing to verify top-down targets:Swiftly fill cost/investment targets with concrete
279、ideas on how to get there;challenge management to ensure“no stone is unturned”and feel responsible for delivery.Consider synergies across functions and avoid planning and exe-cuting in silos:Use workshops to drive cross-function alignment on synergies(cost and investment)and align functions front-to
280、-back on areas where you want to invest to grow and reflect these in the target operating model(TOM).M BluePaperMorgan Stanley Research29Ensure the operating model works front-to-back by designing it“clean slate”:Avoid merely shifting cost from one owner/location to another and optimize processes fr
281、ont-to-back to support your stra-tegic goals.Develop the right culture and behaviors with aligned communica-tion:Set the culture roadmap and plan for culture and behavioral interventions where the transformation might stall.Consistently communicate from the top the need for sustainable cost-out to r
282、ein-vest in growth priorities.Embed the tools and mindset to manage for cost in BAU:Develop transparency across cost drivers,including warning indicators in BAU.Empower each management layer to challenge cost creep,even if revenues rapidly increase.By addressing these challenges head-on,asset manage
283、rs can steer their organizations toward enhanced efficiency and greater opera-tional resiliency,freeing up resources to invest in the most attractive growth areas.M BluePaper303.Taking the Steering Wheel on Driving Growth:Wealth ManagersThe market downturn in 2022 revealed vulnerabilities in the ope
284、r-ating models across most wealth managers.While market cycles will always drive AuM and profitability,leading managers are taking mat-ters into their own hands by identifying attractive sources of growth.This involves a strategic focus on capturing or winning a larger share of net new money(NNM)to
285、offset the adverse effects of market downturns.Concurrently,leading wealth managers are investing in capabilities to enhance advisor productivity,enabling advisors to cap-italize on market upswings and effectively navigate the challenges posed by downturns.Leading wealth managers are transitioning f
286、rom being mere passen-gers to proactive navigators in the industrys growth journey.Market performance will invariably drive financial results,but the ability to capture a larger slice of NNM and empower advisors to be more effective will be the distinguishing factor of those who rise above the volat
287、ility and chart a course toward more sustained growth.We high-light two groups of initiatives that wealth managers can pursue to tap into net new money:Entrepreneurs&ExecutivesFamily Offices3.2:ELEVATE CAPABILITIES TO CAPTURE A GREATER SHARE OF NEW MONEY“Moneyball”for advisor growthWorkplace Wealth3
288、.1:CRACK THE WM-CIB COLLABORATION ENIGMA TO WIN WITH KEY CLIENT SEGMENTS3.1.Crack the WM-CIB Collaboration Enigma to Win with Key Client SegmentsTogether,family offices(FO)and entrepreneurs&executives(E&Es)represent a revenue opportunity greater than$200 billionAs highlighted in Section 1 and last y
289、ears Morgan Stanley Oliver Wyman Blue Paper(link),the affluent and low-HNW client segments(wealth ranging from$300,000 to$5 million)are expected to gen-erate approximately$60 billion in new revenues and make up around 60%of the total wealth management(WM)revenue pool by 2027.This remains an attracti
290、ve opportunity for those that can tap into an existing large affluent client base,or that can win new clients at a low customer acquisition cost to service them profitability(e.g.,through a retail banking feeder channel).Yet for several firms,the biggest opportunity sits at the other end of the weal
291、th spectrum.This is especially appealing for wealth managers possessing a premium brand and access to robust corporate and investment banking(CIB)capabilities,as it opens substantial opportunities within the HNW and UHNW client segments.Among these segments,FOs and E&Es have historically presented g
292、reat growth potential.However,these client segments have complex needs that span beyond WM to include CIB services.To comprehensively serve these clients and unlock the full potential of this opportunity,wealth managers must be able to offer a proposition that combines WM with CIB products.Together,
293、the FO and E&E segments represent a revenue opportunity of more than$200 billion across traditional WM and sophisticated WM and CIB solutions(Exhibit 33).M BluePaperMorgan Stanley Research31Exhibit 33:Client Needs and Global Revenue Pools by Segment1 TraditionalFamily OfficesEntrepreneurs&Executives
294、Client segmentsIndividuals with$300K in investable assets;generally with no associated business to support/grow Handles investment and wealth mgmt.for a wealthy family(usually with$100MM in investable assets)Entrepreneurs and business owners who need support with business growth and expansion consid
295、erations Total revenue poolNeedsTraditional WM services$300 BN20%of net new WM AuM resulting from successful WM-CIB collabora-tions focused on these segments.The intersection of WM and CIB presents a range of revenue syner-gies and opportunities.CIB capabilities can not only help increase the penetr
296、ation of existing WM clients but are also essential for any WM franchise targeting FO and E&E clients.To enable coverage of these client segments,a product range that combines best-in-class corporate banking and investment products is crucial.Financing options,including access to corporate/SME lendi
297、ng and more sophisticated lending(such as pre-IPO debt with equity warrant embedded with unconventional collateral such as shares of non-listed companies)are also key enablers.Additionally,the provision of linkages/relationships to potential investors,such as financial sponsors,is important.Over tim
298、e,collaboration approaches have evolved.Initially,most col-laborations were focused on wealth managers routing all client flows through their CIB divisions.This shifted toward product-based collaborations and is now progressing to more jointly integrated capability and coverage team setups.Some lead
299、ers are rolling out the next frontier,consisting of leveraging and monetizing CIB tech-nology and capabilities with WM clients as the natural evolution to address more sophisticated lending,reporting,and risk management client needs.Leaders have set up integrated capability and coverage teamsLeading
300、 financial services firms have recognized the importance of serving sophisticated client segments,such as FO and E&E,and have invested significantly in organizational initiatives to bring together complementary groups across WM and CIB.Ad hocdriven collaboration models have not proven to be an effec
301、-tive way to capitalize on the opportunities presented by these client segments.Instead,leading firms have found that joint capability and coverage teams that holistically address client needs are the most effective approach.While formalized referral models and embedded coverage models still prevail
302、 in the majority of financial services firms with WM and CIB divisions,these models do not provide the same level of effectiveness as joint capability and coverage teams.By bringing together experts from both WM and CIB,joint capability and coverage teams are able to provide a more comprehensive and
303、 tailored approach to serving the needs of FO and E&E segments.This approach has proven to be more effective than traditional referral models,which may not fully address the complex needs of these sophisticated client segments.Joint capability and coverage teams also overcome the common challenge of
304、 mistrust between WM and CIB teams rooted in the fear of damaging client relationships and ineffective individual incentives(e.g.,individual allocation of shared revenues may be indirect,unclear,or too small,reducing the overall incentive).Many firms that have the necessary capabilities to serve the
305、 needs of these client segments face a significant obstacle to success:onboarding processes.In most banks,clients must be onboarded in both the WM and CIB divisions to access the full range of capabilities.However,the necessary CIB onboarding processes are often cumber-some and not tailored to these
306、 client segments,resulting in onboarding processes that can take longer than 90 days.To address this issue,leaders have established joint WM-CIB onboarding pro-cesses that are rigorous and more tailored to these client segments.Effective governance,including the requirement for a single decision-mak
307、er accountable for outcomes,is a critical driver of success.Additionally,clear revenue booking logics across the WM and CIB divisions that are fair and provide the necessary incentives for both divisions are essential.M BluePaperMorgan Stanley Research33Exhibit 35:Strategic Direction of Collaboratio
308、n IndependentCollaborationIntegrationStrategy Some players are divesting or scaling back WM or CIB businesses in specific Geos or Segments Other“monolines”choosing to remain stand-alone Most firms are pursuing structured collaboration to cross-sell existing clients,via referral models Advanced playe
309、rs are investing significantly in organizational initiatives to bring together complementary groups across CIB and WMObjectives Cultivate brand of independent advisory,marketing this actively to clients Use lack of cross-sell as an advantage when recruiting bankers(i.e.,keep rolodex private)Incremen
310、tally grow share of existing client wallet and net new business through better cross-sell between CIB and WM Optimize within existing footprints Service new client segments by fundamentally changing product offering Improve client service by aggregating existing capabilities under a single go-to-mar
311、ketapproachSource:Oliver Wyman3.2.Elevate Capabilities to Capture a Greater Share of New MoneyWorkplace WealthThe workplace can unlock a$35-50 trillion wealth opportunity for wealth managers with a comprehensive set of financial ser-vices capabilities.The modern workplace,where a substantial portion
312、 of affluent indi-viduals dedicate the majority of their waking hours,presents a signifi-cant opportunity for the WM industry.The rationale is compelling:By establishing relationships with employers,wealth managers can enjoy“early access”to a gold mine of potential retail clients.Exhibit 36:Workplac
313、e Wealth and Assets Held Away Workplace financial wealth$20-25TNFinancial wealth held-away$15-25TN$35-50TNTotal opportunity+=Source:Oliver Wyman analysisWorkplace wealth is frequently associated with wealth accumulated on defined benefit(DB)or defined contribution(DC)plans.These plans are vast($21 t
314、rillion and$16 trillion,respectively,in wealth globally),highly competitive,and growing at single digits.Recordkeeping these assets,and the associated rollovers,has been the flagship offering of firms in this segment.Besides this flagship offering,we see promising opportunities for wealth managers,i
315、ncluding two major ones:financial advice on DC plans and stock-based compensation recordkeeping.Additionally,there are two complementary opportunities in executive financial counseling and private stock liquidity.As mentioned,these opportunities provide not only access to wealth accumulated in the w
316、orkplace but the potential to win the whole client relationship with assets held away,totaling a$35-50 trillion opportunity for wealth managers.Financial advice for DC plans:Given the vast amount of assets man-aged at DC globally($16 trillion)the opportunity to deliver financial advice is very large
317、.We see a set of models suitable for this segment,from digital advisory models to serve mass and mass-affluent clients,which can generate$12-18 billion in annual revenue,to hybrid and full-service offerings for affluent or wealthier clients,which can bring$60-80 billion in annual revenue.In the UK,w
318、e observe firms addressing this need with a financial wellness proposition,which enables wealth conversations with employees via seminars and edu-cation.In the US,tech-enabled players have started to partner with recordkeepers to serve this market,but a minority of DC accounts are managed.Once an ad
319、visory relationship is established,wealth man-agers can aim to also advise on assets held away of the DC plan,which we estimate at$15-25 trillion globally,on top of the$16 trillion in DC assets.In continental Europe,DC recordkeepers are uniquely posi-tioned to offer financial advice on DC assets and
320、 manage wealth held away from participants at attractive price points,potentially threat-ening traditional wealth managers.M BluePaper34Stock-based compensation:Recordkeeping of stock-based com-pensation allows firms to be aware of stock grants and liquidations,which can generate a substantial numbe
321、r of qualified leads to the retail wealth arm.We estimate$2-3 trillion in stock-based wealth at public firms,and$4-5 trillion at private firms globally,with annual flows of around$500 billion.Leading wealth managers should aim to retain 20-40%of the stock being liquidated,but also strive to cap-ture
322、 wealth held away,competing for the$15-25 trillion pool men-tioned above.As with DC recordkeeping,stock recordkeeping can provide a sizable position and a center of gravity around which wealth managers can build their workplace offering.Executive financial counselling:Wealth managers with institutio
323、nal relationships(e.g.,corporate banking,investment banking)should be in an ideal position to advise an organizations senior executives.These individuals present a complex financial picture(e.g.,multi-di-mensional compensation,public exposure,legal restrictions to trade the firms stock),so wealth ma
324、ngers with comprehensive capabilities should be well positioned to serve this segment.We estimate a global addressable market of$200-300 billion in financial wealth.In the US,we estimate$120-140 billion in financial wealth and$2 billion in annual revenue.Private stock liquidity:Private firms looking
325、 to attract or retain talent are increasingly using solutions to liquidate employee-owned stock.In the US,we estimate approximately$60 billion in liquidity volume and revenues of$2 billion from 2019 to 2022.Since this ser-vice is perceived as differentiating,large wealth managers with insti-tutional
326、 relationships and investment banking capabilities should carefully consider this opportunity.Moneyball for Advisor GrowthEmbedding advanced data and analytics into advisor recruitment(i.e.,“Moneyball”for advisor growth)represents an opportunity of up to$600 billion in client assets over five years
327、and a revenue opportunity of$3-5 billion.Thousands of advisors switch jobs each year,often taking their cli-ents with them.In the US specifically,we observed 25,000 to 30,000 advisor moves per year(around 10%of the US advisor force),translating to an estimated$2-3 trillion in client assets in motion
328、.Wealth managers adopting a strategic,data-driven approach to advisor recruiting can enhance the likelihood of success at capturing assets in motion.We have dubbed this the“moneyball”for advisor growth.We have identified three key levers that can help wealth managers build a competitive advantage by
329、 using data and analytics to super-charge recruiting efforts:Establish the right ambition by using the right bench-marking data Prioritize the right advisors by analyzing advisor-in-motion cohorts and track record of success Focus on the right markets by understanding advisors-in-motion volumes and
330、relative recruiting strengths by wealth marketWealth managers applying these principles can reap significant bene-fits anywhere in the world.We estimate that a large wealth manager(i.e.,with more than 6,000 advisors)that adopts the moneyball methodology has the potential to capture an extra$600 bill
331、ion in client assets over five years.For medium-sized firms(3,000-6,000 advisors),size may become a limiting factor,but we estimate a$300 billion opportunity in five years.Some markets,like the US,enjoy better data availability,which makes this analysis more actionable.For firms in markets with less
332、 readily available information,a larger effort to produce comparable data or find suitable proxies should be considered given the potential upside.Wealth managers who choose not to actively participate in advisor recruitment require additional tools and strategies to attract net new money relative t
333、o their peers.Regardless of appetite for recruitment,advisor retention remains an important consideration for wealth managers in order to grow sus-tainably.Exhibit 37:Moneyball for Advisor Growth Prioritize the right advisor cohortsEstablish the right ambitionFocus on the right marketsELEVATE YOUR ADVISOR RECRUITING WITH THE POWER OF DATA AND ANALYTICSAdditional$600BN AuM opportunity in a five-yea