Rise of AUM: Betting large on assets

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  Quantumrun Foresight
• February 4, 2025

Insight summary

The rapid growth in global assets under management (AUM) is reshaping investment strategies, driven by increased access to diverse portfolios and the expansion of passive and alternative methods. This shift is making opportunities more accessible to a broader population while also pushing asset managers to adopt technology and meet new regulatory demands. As public-private partnerships and green infrastructure investments rise, governments may respond with policies that both protect investors and encourage responsible economic growth.

Rise of AUM context

Assets under management, a measure of the total value of investments managed by a financial institution, are poised for significant growth. According to PwC, global assets under management are projected to expand from USD $84.9 trillion in 2016 to USD $145.4 trillion by 2025. This rapid rise in assets reflects increased wealth accumulation among high-net-worth individuals and the shift towards defined contribution retirement plans, which are driving greater demand for asset and wealth management services. Additionally, PwC's analysis indicates that emerging markets in Asia-Pacific and Latin America will experience some of the highest growth rates in the industry. The rise of retail investments, such as mutual funds and exchange-traded funds (ETFs), is supporting this global growth, providing individuals with diverse investment opportunities.

The anticipated growth in AUM underscores changing investment strategies, where active, passive, and alternative methods are gaining traction among investors seeking tailored solutions. While actively managed funds will continue to represent a substantial share of assets, passive investments, such as index funds, are projected to capture a growing market segment due to their lower fees and accessibility. PwC expects passively managed assets to increase from 17% of global assets under management in 2016 to 25% by 2025, driven by rising interest in ETFs and index funds among retail and institutional investors. Meanwhile, alternative investments, including private equity, real assets, and private debt, are forecast to grow significantly, especially as investors diversify to hedge against market volatility.

AUM in North America is also experiencing notable growth, though challenges remain amid shifting investor preferences and cost pressures. According to a 2024 report by McKinsey, North American AUM reached a record USD $132 trillion as of mid-2024, boosted by strong market performance and positive net inflows. However, despite this growth, revenues in 2023 remained flat due to a significant shift from higher-cost active equity products to lower-cost passive and fixed-income investments. 

Disruptive impact

As asset management firms continue to develop low-cost investment products, more individuals may find it easier to access portfolios previously available only to wealthier investors, such as private equity funds or real estate trusts. However, this accessibility could encourage riskier investments, particularly in alternatives that may be less liquid, like private equity or infrastructure. Additionally, technology-driven investment platforms are simplifying asset management, which may lead some individuals to overestimate their expertise in complex markets.

Asset managers now face pressure to develop cost-effective products and streamline operations to remain competitive as low-fee passive strategies grow in popularity. Furthermore, companies across sectors may start to view asset management services as a competitive advantage, as seen with some insurance firms investing in private credit or infrastructure to diversify revenue streams. However, businesses may also encounter challenges in maintaining data privacy and regulatory compliance as they integrate new technologies like artificial intelligence into their financial services.

As more citizens invest in alternative assets, governments may need to introduce policies that protect retail investors from high-risk products or illiquid investments. Additionally, public-private partnerships may expand as asset managers invest in infrastructure, requiring governments to develop clear frameworks to manage these relationships effectively. Furthermore, this shift may prompt policymakers to create incentives for local investment, ensuring that domestic funds support national economic growth rather than flowing into foreign markets. 

Implications of the rise of AUM

Wider implications of the rise of AUM may include: 

• Companies expanding their product lines to include lower-cost, passive funds, making investing more affordable for a broader range of people. 
• More people gaining access to private market investments, shifting wealth-building opportunities from a few high-net-worth investors to a wider population.
• Governments establishing tax incentives for investments in local infrastructure projects, drawing capital from private funds to improve public services and job creation.
• Cities gaining access to cleaner energy solutions and sustainability initiatives as funds flow into real assets like green infrastructure.
• Schools and training programs offering more courses on financial literacy and asset management, equipping younger generations with investment knowledge. 
• Companies investing more in AI to improve efficiency, resulting in lower operational costs and enhanced decision-making in portfolio management.
• Local economies potentially experiencing faster growth as pension funds and private investments are channeled into nearby developments, benefiting small and medium businesses. 
• Regulations becoming more complex as governments seek to protect individual investors in private equity, prompting asset managers to increase transparency and compliance measures.
• Job roles in asset management becoming more specialized and data-driven, leading to more high-paying jobs for analysts, technologists, and regulatory compliance experts.
• The rising demand for investment in natural resources and land leading to stricter environmental policies, as governments aim to balance economic growth with conservation efforts.

Questions to consider

• How might increased access to diverse investment options change the way you plan for your financial future?
• How could more private investments in local infrastructure improve the services and resources in your community?