The asset management industry is set to undergo significant consolidation in the coming four years, with approximately one in six companies at risk of disappearing due to market volatility, high-interest rates, and fee pressures, according to a PwC survey.

According to the Financial Times, the survey of 500 asset managers and institutional investors also revealed that nearly three-quarters of asset managers are contemplating acquisitions or mergers as they face challenges in a demanding market environment.

The trend of larger firms growing even bigger is apparent, driven by cost and margin pressures, which are compelling managers to assess their critical mass.

Fund managers are grappling with the aftermath of the largest decline in assets in a decade.

The managed sum decreased by 10 percent between 2021 and 2022, from a peak of USD 127.5 trillion to USD 115.1 trillion, impacted by declining markets and associated management and performance fees.

Inflation, market volatility, and interest rates were identified as the primary drivers of this decline, with nearly half of the managers predicting that environmental risks and geopolitics would further impact their assets under management.

The global asset management industry has been actively engaging in deals, pursuing new clients and areas of growth through high-profile mergers and acquisitions.

Recent examples include Franklin Templeton's acquisition of Putnam Investments for over USD 1 billion and Brookfield Asset Management's anticipation of asset manager consolidation, expecting up to 10 industry leaders to emerge.

Wealth management experiences a similar trend, such as Rathbones' acquisition of Investec Wealth & Investment for GBP 839 million, resulting in a company with assets under management exceeding GBP 100 billion.

PwC forecasts that the top 10 traditional asset managers will control half of all assets going into mutual funds by 2027, up from 42.5 percent in 2020.

Furthermore, PwC predicts that robo-advisory services utilizing algorithms will manage USD 6 trillion by 2027, offering low-cost personalized advice.

The survey also indicates that disruptive technologies like generative AI and blockchain are expected to enhance returns and attract young investors, who are set to inherit USD 68 trillion from the previous generation.

In terms of fees, which have already seen a decline of 20 percent to 25 percent for active and passive investment funds between 2017 and 2022, further decreases are projected, benefiting larger players with the ability to absorb lower fees due to their scale.

The race to accumulate assets under management is intensifying, exerting significant competitive pressure on fees, which many believe ultimately benefits investors, according to PwC's Alexander.