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China's key for asset management

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What's going on?

According to investment bank Morgan Stanley, the future of investment management lies in China and “alternative” investments…

What does this mean?

Investment managers typically make money by charging a percentage fee on the total amount of money they look after. As more investors put their cash in popular low-fee “passive” investments, managers can’t charge as much as if they were “actively” investing on customers’ behalves. So to grow revenues, investment managers are instead aiming to increase the pool of money they steward.

In a recent report, Morgan Stanley forecasts that there’ll be $7 trillion worth of assets being managed in China alone by 2023 – which will contribute half of asset managers’ revenue gains in emerging markets between now and then.

Why should I care?

For you personally: You asked about alternatives…

Recently, several Finimizers asked us how to get involved in alternative investments. Investing in things like real estate – or typically riskier hedge funds and private equity – could seem more attractive for those seeking returns beyond what the stock market’s expected to offer this year. According to Morgan Stanley’s report, your very own investment manager or robo-advisor might have more alternatives to typical stock market investments on offer in the next few years. That said, you could also go it alone: there are several new platforms that help you invest in things like art or property, for example.

For markets: Pressure on investment managers.

Not only are asset managers’ fees falling as passive investing becomes more popular, investors who do want hands-on money management are less willing to pay for it, according to Morgan Stanley. The firm predicts that industry revenue from active management will shrink 36% over the next five years, which may explain why the sector’s valuation is at a historical low. The global pressure on the industry’s revenue is also being accelerated by UK financial regulators: they’re proposing a limit on the fees investment platforms can charge investors taking money out.

Originally posted as part of the Finimize daily email.

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