NEW YORK (March 3, 2021) – ISS Market Intelligence, a unit of Institutional Shareholder Services providing critical data and insight to global asset managers, insurance companies, and distributors to help them make informed and strategic decisions to manage and grow their business, today announced the release of the Asset Management Industry Market Sizing Report. The annual report enables asset managers to identify opportunities across the investment fund landscape and benchmark expectations for their businesses over the coming years.
The 96-page report explores how the Coronavirus pandemic has reshaped the asset management landscape including by triggering a digital leap in how the public trades, saves, and invests. Despite a lightening-quick rebound from a first quarter plunge, 2020 year-end money market assets, at $4.2 trillion, remained nearly $700 billion above 2019 year-end levels, according to the report. Redemptions hit mutual funds, especially active ones, hard, while ETFs accounted for virtually all the nearly $350 billion in net long-term flows for the year. Meanwhile, ESG funds were among the year’s winners, taking in a record $60 billion in net flows, nearly triple their 2019 haul (which itself was a record). The pandemic, wildfires, social unrest, and political strife of 2020 collectively highlighted the human, environmental, and financial risks ESG strategies purport to address.
Despite the adverse investing impacts stemming from the pandemic, there are good reasons to expect better in 2021, according to the report’s authors. “In the near term, asset managers have good reason for optimism,” said Christopher Davis, lead author and Head of U.S Fund Research at ISS Market Intelligence. “Our 2021-2025 outlook for long-term funds anticipates flows will rebound spritely from 2020’s depressed levels.”
The report estimates $2.7 trillion will flow into long-term funds over the next half-decade. Over this stretch, Davis expects long-term assets to climb $7.2 trillion, reaching $27.3 trillion by 2025—a 6.3% annualized growth rate.
In addition to the foregoing, the report highlights a number of key industry themes, including:
- Flows and performance are no longer joined at the hip. With investor portfolios increasingly powered by asset-allocation solutions like target-date funds and model portfolios, better performance for the asset class often means weaker flows—a reversal of the sales-follows-returns pattern that has driven fund providers’ sales and marketing strategies. Counter intuitively, this is a plus for asset classes ISS Market Intelligence expects to underperform, especially U.S. equities.
- Taxable bonds will dominate the flow race over the next five years, totaling nearly $2 trillion in net sales. U.S. stock funds will take in less than $100 billion over the period—less than 3 percent of total long-term flows—but will still account for about one-third of long-term asset growth. In percentage terms, the smaller tax-free bond, alternatives, and commodities asset classes will grow most quickly.
- Index fund market share will cross the 50 percent mark in 2025. Indexing will gain less ground in international stock and bond categories, leaving active managers attractive pockets for growth.
- Rumors of the old-fashioned mutual fund’s demise are exaggerated. Mutual funds will remain a powerhouse for years to come, but most of the benefits will accrue to index fund managers. However, active ETFs, which we estimate will generate more than $700 billion in net sales, represent a real opportunity for active managers.
- Technology and new pricing models are reshaping the investment landscape, pushing assets toward ETFs and separately managed accounts. The ingredients are in place for mass customization (“custom indexes”) of investor portfolios—both an opportunity and threat to asset managers.
For more on the Asset Management Industry Market Sizing Report, please click here.
About ISS Market Intelligence
ISS Market Intelligence (MI) division provides critical data and insight to global asset managers, insurance companies and distributors to help them make informed, strategic decisions to manage and grow their business. Through its industry-leading combination of proprietary and integrated datasets, in-depth global research and reliable executive engagement, ISS MI delivers solutions for market sizing, competitor benchmarking, product strategy and opportunity identification across a wide range of financial products including funds, annuities, insurance, mortgages, and other instruments. The ISS MI group includes the industry-leading data platforms Simfund, BrightScope, Local Market Share, and Financial Clarity, as well a full collection of global research and analytic services including Investor Economics, Market Metrics, and Plan for Life.
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.