ISS Market Intelligence Forecasts Long-term U.S. AUM to Reach $29.8 Trillion by End of 2027

NEW YORK (January 17, 2023) – ISS Market Intelligence (ISS MI), a unit of Institutional Shareholder Services and a leading global provider of data, analytics, insights, media, and events solutions to the global financial services industry, today announced the release of its State of the Market: Future of Retail Products report covering the 2023-2027 outlook for long-term funds in the U.S.

The report suggests that, after slumping in 2022, long-term fund assets under management (AUM) will rebound to historically normal growth rates over the next five years. ISS MI projects AUM growth will average 7.1 percent annually in the 2023-2027 period, with long-term assets rising to $29.8 trillion by 2027. With 2022’s down markets cutting valuations to size, most capital market forecasts anticipate improved returns across asset classes, boosting long-term AUM growth.

With poor fund performance weakening investor appetites and inflation eroding the public’s capacity to save and invest, the report expects fund sales to recover slowly from 2022’s decline. As organic growth reverts to historical trend, however, ISS MI expects long-term funds to net $2.7 trillion in sales through 2027—a 2.4 percent annualized growth rate.

Meanwhile, the report finds that, while U.S. equity fund flows are expected to rebound to a projected $197 billion in flows over the 5-year period, bond funds will still outsell stock funds by an estimated $1.8 trillion. While inflation and higher interest rates are likely to dampen interest in fixed income in the near term, an aging population should sustain relatively high demand for bond funds over the longer term. Overall, taxable and tax-free bond funds should soak up $2.2 trillion, or 81 percent, of total long-term flows in the next five years.

“Fund managers will face familiar challenges over the next five years, ranging from continued pressure from passives to aging demographics. Newer concerns such as high inflation also will put managers to the test, at least in the near term,” said Christopher Davis, lead author and Head of U.S. Fund Research at ISS MI. “However, the next five years should provide new ways for managers to package their intellectual capital. Significant changes in the industry’s asset class and product makeup provide opportunities for new winners to emerge.”

The report highlights a number of key industry themes and changes, including:

• Index funds will control more than half of long-term assets by 2027: ISS MI projects active fund share will fall from 53 percent to 44 percent over the next five years. This shift will boost index ETFs most, with the vehicle expected to net $2 trillion in new sales.  On a net basis, the rebound in equity fund flows is expected to leave active managers empty handed. The prospects for active equity mutual funds are weakest, with an estimated $1.4 trillion in net redemptions over the next half decade.
• Outside of equities, a growing pie will boost active fixed income, alternatives managers: Although the report expects a majority of taxable bond fund sales to accrue to passive fund managers, active funds should get a large slice of the fast-expanding pie—an estimated $570 billion in net flows. Thanks to healthy organic growth, ISS MI anticipates active bond funds will grow AUM faster than active stock funds, despite stocks’ better return prospects.
• Niche areas like alternatives also offer active managers new avenues for growth: As alternatives’ market share grows from approximately 1.4 percent to 2.1 percent over the next five years, the asset class is projected to grow AUM by approximately 15 percent per year—the highest projected growth for any asset class over the period. ISS MI’s survey of financial advisors reveals growing interest from fund buyers but also worries over alternatives’ liquidity requirements, greater need for due diligence, and higher fees.
•  Active ETFs will not arrest active management’s decline, but they will attract an increasing share of active fund assets: The fund-to-ETF conversion trend boosted active ETF assets considerably in 2022, and ISS MI expects active ETF market share to rise further from 1.4 percent to 2.3 percent over the next five years, translating into 17.4 percent annualized AUM growth and over $280 billion in new flows. The potential for rapid growth has already spurred heavy product development activity, with the number of active ETF launches far outpacing any other product categories in 2021 and 2022. Active ETFs are unlikely to reverse active funds’ market share decline, but further fund-to-ETF conversion activity and the underrated possibility of widespread ETF-as-share class distribution leave room for additional growth.

Simfund Enterprise subscribers have direct platform access to State of the Market: Future of Retail Products, or contact sales@issmarketintelligence.com to learn more.

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About ISS Market Intelligence
ISS Market Intelligence (MI) is a leading global provider of data, analytics, insights, media, and events solutions to the global financial services industry. ISS MI empowers global asset and wealth management firms, insurance companies, distributors, service providers, and technology firms by providing cutting-edge market-engagement platforms and the actionable intelligence necessary to fully assess their target markets, identify and analyze the best opportunities within those markets, and execute on comprehensive go-to-market initiatives to grow their business.  ISS MI clients benefit from our increasingly connected global ecosystem that leverages a combination of proprietary data, powerful software and analytics, timely and relevant insights, in-depth research, as well as an extensive suite of industry leading media brands that deliver unmatched market connectivity through news and editorial content, events, training, ratings, and awards. ISS MI data and analytics solutions include intelligence from BrightScope, Discovery Data, Financial Clarity, Flowspring, FWW, Investor Economics, MISight, Mortgage Clarity, Plan for Life, RainmakerLive, and Simfund, and ISS MI media brands and market-engagement platforms include Chief Investment Officer, PlanAdvisor, PlanSponsor, Financial Standard, FS Sustainability, Money, and Industry Moves.

About ISS
Founded in 1985, Institutional Shareholder Services group of companies (ISS) empowers investors and companies to build for long-term and sustainable growth by providing high-quality data, analytics and insight. ISS, which is majority owned by Deutsche Bourse Group, along with Genstar Capital and ISS management, is a leading provider of corporate governance and responsible investment solutions, market intelligence, fund services, and events and editorial content for institutional investors and corporations, globally. ISS operates on an arm’s-length basis and Deutsche Bourse has adopted Principles protecting the independence and integrity of ISS’ research offerings. ISS’ 2,000 employees operate worldwide across more than 30 global offices in 15 countries. Its more than 4,000 clients include many of the world’s leading institutional investors who rely on ISS’ objective and impartial ESG and governance research, market intelligence and fund services and data and analytics, as well as public companies focused on ESG and governance risk mitigation as a shareholder value enhancing measure. Clients rely on ISS’ expertise to help them make informed investment decisions.  

Media Contact:
Audrey Dedrick
Analyst – Communications
press@issgovernance.com