How do markets see the asset management sector?
The share prices of traditional asset managers underperformed in 2023 and, although the sector saw a slight expansion in PE multiples towards the end of the year, it currently trades below its five-year average PE ratio of 13.0x. Alternative asset managers, meanwhile, have been supported throughout 2023 by their more resilient, diversified business models as well as structural tailwinds.
In private markets, 2023 deal activity was subdued and remained well behind the pace of private-equity activity seen in the adjacent UK wealth sector. However, private equity and trade-driven consolidation is expected to increase in 2024 due to a continued focus on alternative asset classes, diversification and operating margin enhancement through scale.
2024 Sector trends
Macroeconomic uncertainty to moderate
While the overall macroeconomic outlook remains volatile, we expect some degree of recovery throughout 2024 driven by falling inflation and the start of base rate cuts. However, upcoming US and UK elections may impact market performance and investor sentiment during the second half of 2024.
Geopolitical uncertainty could lead to higher volatility
Following Russia’s invasion of Ukraine in 2022, geopolitical tensions escalated further in 2023, notably in Israel and Palestine. These conflicts persist into 2024 and further escalation is likely to drive equity market volatility.
A return to positive flows
We expect to see some recovery in the second half of 2024 given the improving macroeconomic environment, particularly for managers with more resilient performance, as well as specialist strategies.
More attractive fundraising conditions for alternative asset managers
Fundraising timelines are expected to normalise after extended fundraising periods that led into 2024, with increased allocations into private capital asset classes.
Focus on fees
Traditional asset managers have experienced declining management fee margins over the past decade which we expect to remain under pressure. This is due in part to the growing demand for alternative and passive investment products, where fee margins are resilient and are expected to remain attractive.
Ever increasing regulation
Higher costs are expected from ongoing implementation of Consumer Duty and the FCA’s announced Sustainability Disclosure and Labelling Regime.
Consolidation to rebound
Consolidation is expected to rebound driven by a focus on alternative asset classes, the need for technology investment, higher operating and regulatory costs, and difficulties in providing competitive products across specialised distribution channels among smaller asset managers.
