December 2017

Asset Management Industry Market Sizing: 2017–2022

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. For questions or further information regarding this report, please contact Jeff Strange (jeffrey.strange@strategic-i.com) or research@strategic-i.com.

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Asset Management Industry Market Sizing: 2017–2022

DISCLAIMER: The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) may not be copied or redistributed for any purpose, (c) are provided solely for information purposes, and (d) are not warranted or represented to be correct, complete, accurate, or timely. Past performance is no guarantee of future results. Reproduction in whole or in part prohibited except by permission. Any data or commentary in this report is for the internal use of the client only and is not to be disseminated to the general public and sales intermediaries in the form of regulatory or other reports, promotional material, or advertising without the prior written consent of SI.

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Strategic Insight (SI) 805 Third Avenue, 21st Floor New York, NY 10022 USA

Copyright 2017. Strategic Insight. All rights reserved.

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Jeff Strange serves as a Managing Director of U.S. Research at SI, where he covers asset management and distribution trends. In his role, he helps to lead SI’s research and advisory services focused on the U.S. fund industry, with specialized coverage of the subadvisory market. Prior to joining SI, he was the Director of Research at DST kasina and was responsible for setting research direction and managing the research team. For nearly seven years, Jeff focused on managed accounts research, including extensive research on advisory platform design, at

Cerulli Associates. He has also worked at Cole Real Estate, State Street Research, and FleetBoston Financial. Jeff earned a BS from Georgetown University and is a CAIA charterholder.

Report Author: Jeffrey Strange Contributions by Dennis Bowden, Matt Cirillo, Paul Curley, Anthony Disanzo, Alan Hess, Julie Martin

his Strategic Insight (SI) Research report, Asset Management Industry Market Sizing: 2017–2022, provides a comprehensive perspective on the size and growth of the fund market in the U.S. and internationally. The report combines Strategic Insight’s best thinking on market dynamics with its proprietary model to forecast growth. This is the only industry research that provides five-year projections of fund assets and flows

at the asset class level.

The report offers insight on formative trends that will impact various segments of the industry, including analysis of the retirement market, the broker-dealer landscape, and global wealth management developments. It is based on a foundation of historical data from Simfund and third party sources, including: company filings, Discovery Data, Federal Reserve Board (FRB), Internal Revenue Service (IRS) Statistics of Income Division, Investment Company Institute (ICI), Money Management Institute (MMI), Morningstar, National Association of Government Defined Contribution Administrators, U.S. Department of Labor (DOL), Zephyr Associates, and Access Data, a Broadridge Company.

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About This Report

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About the Author

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Table of Contents

Contents

Executive Summary 8

Methodology 11

Channel Overview 11

2017 Methodology Enhancement 11

Sales and Asset Estimates and Projections 11

Firm Rankings 12

Section 1: 2016 Investment Year in Review 13

Key Takeaways 13

Market Summary 13

Review of Assets and Flows 13

Conclusion 16

Section 2: The Household Balance Sheet and Forces Shaping the Retail Market 17

Key Takeaways 17

U.S. Household Balance Sheet 17

Forces Shaping the Retail Market 19

Demographics 19

Technology 22

Regulation 23

Lower Market Returns 23

Conclusion 23

Section 3: Projections by Asset Class 24

Key Takeaways 24

Projections Overview 24

Capital Markets Returns Assumptions 25

Equity and Multi-asset Fund Projections 25

Domestic Equity 27

International/Global Equity 28

Multi-Asset and Liquid Alternatives 30

Commodities 32

Bond Fund Projections 33

Corporate Bond 33

International/Global Bond 35

Government Bond 35

Tax-free Bond 36

Conclusion 36

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Contents (continued)

Section 4: Retail Investment Market Product Projections, 2017–2022 37

Key Takeaways 37

Retail Products by Segment 37

Mutual Funds and ETFs 39

Separately Managed Accounts (SMA) 40

Variable Annuities 41

529 College Savings Plans 41

Closed-end Funds 42

Conclusion 42

Section 5: Distribution Channels 43

Key Takeaways 43

U.S. Subadvisory Market 45

Section 6: The Intermediary Channel—Assets, Sales and Adviser Counts 47

Key Takeaways 47

Projected Growth by Intermediary Channel 48

Adviser Headcount 49

Wirehouse Channel 49

Regional Broker-Dealer Channel 51

Independent Broker-Dealer Channel 53

Bank Broker-Dealer Channel 54

Insurance Broker-Dealer Channel 55

Independent RIA Channel 56

Section 7: Retirement Markets 57

Key Takeaways 57

Defined Contribution Market Overview 57

Target-date funds 59

Conclusion 60

Section 8: Global Asset Management 61

Key Takeaways 61

Global Snapshot 61

Dominant Global Themes and Opportunities 65

Global ETFs, Index and Active Funds Trends 65

Socially Responsible Investing 68

Consequences of Fees Unbundling under MiFID II 70

Global Growth Outlook 72

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Directory of Exhibits

Exhibit 1-1 Summary of Growth and Projections by Asset Class ..................................................................................................... 8

Exhibit 1-2 Summary of Mutual Fund Growth and Projections for Major Intermediary Channels.......................................... 9

Exhibit 1-3 Market Performance as Measured by Leading Indexes, 2011–YTD Sept 2017 ...................................................... 13

Exhibit 1-4 Mutual Funds and ETFs: 5-Year Summary by Asset Class, 2011–2016 ..................................................................... 14

Exhibit 1-5 Mutual Funds and ETFs: Net Flows by Asset Class, 2011–3Q 2017 ........................................................................... 14

Exhibit 1-6 Mutual Funds and ETFs: Asset and Net Flows by Product and Asset Class, 2013–3Q 2017 .............................. 15

Exhibit 2-7 The U.S. Household Balance Sheet—Key Components .............................................................................................. 18

Exhibit 2-8 Forces Shaping the Market ................................................................................................................................................... 19

Exhibit 2-9 Historical Student Loan Debt and Average Increase in Debt ($ billions), 2003–2016..........................................20

Exhibit 2-10 Evolution of Household Lifecycle: Debt for Life, Wealth Accumulation Delayed, Later and Longer Payout Phase ...........................................................................................................................................21

Exhibit 2-11 U.S. Personal Savings Rate as a Percent of Disposable Annual Income, 1959–2016............................................21

Exhibit 2-12 The Transition of Focus and Influence has Moved Up the Value Chain, Landing on the Consumer and their Objectives in the Digital Age .......................................................................................................................22

Exhibit 2-13 Annual Total Investment Advisory Solutions Assets and UMA Programs as a Percentage of Total Assets, 2011–2Q 2017 ............................................................................................................................................22

Exhibit 2-14 Median Pre-Tax Operating Margin for Publicly Traded Asset Managers, 1997–2016 ..........................................23

Exhibit 3-15 Summary of Projected Growth Rates for Mutual Funds and ETFs ............................................................................24

Exhibit 3-16 Total Net New Flows for Mutual Funds and ETFs, 2011–2022P .................................................................................25

Exhibit 3-17 Investment Markets, Fund Average Annual Return Assumptions, 2017–2022 .......................................................25

Exhibit 3-18 Equity/Multi-Asset Mutual Funds and ETFs: Asset Growth, 2011–2016 ...................................................................26

Exhibit 3-19 Domestic Equity: Asset and Net Flows Projections, 3Q’17–2022P ........................................................................... 27

Exhibit 3-20 International/Global Equity: Asset and Net Flows Projections, 3Q’17–2022P .......................................................28

Exhibit 3-21 Annual Net New Flows in Intermediary Channels to U.S. Equity and International Equity Morningstar Categories Compared to Index Returns, 2013–YTD 3Q’17 ................................................................28

Exhibit 3-22 Net New Flows in Intermediary Channels to Four and Five Star Funds in U.S. Equity and International Equity Morningstar Categories, 2013–YTD 3Q’17 ................................................................................29

Exhibit 3-23 Multi-Asset: Asset and Net Flows Projections, 3Q’17–2022P .....................................................................................30

Exhibit 3-24 Liquid Alts: Asset and Net Flows Projections, 3Q’17–2022P ........................................................................................31

Exhibit 3-25 Asset Concentration among Alternative Mutual Funds and Managers, 2008–3Q’17 .......................................... 32

Exhibit 3-26 Commodities: Asset and Net Flows Projections, 3Q’17–2022P ................................................................................ 32

Exhibit 3-27 Bond Mutual Funds and ETFs: Asset Growth, 2011–2016 ...........................................................................................33

Exhibit 3-28 Corporate Bond: Asset and Net Flows Projections, 3Q’17–2022P ...........................................................................34

Exhibit 3-29 International/Global Bond: Asset and Net Flows Projections, 3Q’17–2022P .........................................................34

Exhibit 3-30 Government Bond: Asset and Net Flows Projections, 3Q’17–2022P .......................................................................35

Exhibit 3-31 Tax-Free Bond: Asset and Net Flows Projections, 3Q’17–2022P ...............................................................................36

Exhibit 4-32 Growth of Retail Investment Product Assets, 2011–2016 ........................................................................................... 37

Exhibit 4-33 Retail Investment Product Asset, Appreciation, and Net Flows Projections, 2016–2022P ................................38

Exhibit 4-34 Retail Investment Product Asset Market Share, 2011–2022P .....................................................................................39

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Directory of Exhibits (continued)

Exhibit 4-35 Projected Allocation of Annual Net Flows Between Mutual Funds and ETFs, 2017P–2022P ............................39

Exhibit 4-36 Estimate of Percentage of SMA Assets by Asset Class, 2016 ......................................................................................40

Exhibit 4-37 Variable Annuity Net Flows by Equity and Bond Funds, 2011–YTD 3Q’17 ...............................................................41

Exhibit 5-38 Mutual Funds: Projected Sales, Net Flows and Asset Growth by Broad Distribution Channel, 2016–2022P ............................................................................................................................................................................44

Exhibit 5-39 ETFs: Projected Net Flows and Asset Growth by Broad Distribution Channel, 2016–2022P ............................45

Exhibit 5-40 Mutual Fund and Variable Fund Mandate Changes, 2008–YTD 3Q’17 ....................................................................46

Exhibit 5-41 Top Mutual Fund and Variable Annuity Sponsors by Subadvised Assets, 3Q’17 ....................................................46

Exhibit 6-42 Fee-Based Advisory Sales as a Percentage of Total Adviser-Sold Channel Sales, 2009–2016 ......................... 47

Exhibit 6-43 Projected Mutual Fund Sales and Asset Growth by Intermediary Channel, 2016–2022P ..................................48

Exhibit 6-44 Actual and Projected Retail Financial Advisor Head Counts, Q2 2017–2022P ......................................................49

Exhibit 6-45 Estimated Annual Net Flow Rates By Product for Wirehouse Channel, 2014–2016 ............................................50

Exhibit 6-46 Wirehouse Channel Advisors by Broker-Dealer, Q2 2017 ...........................................................................................50

Exhibit 6-47 25 Largest Regional Broker-Dealers by Number of Advisors ..................................................................................... 52

Exhibit 6-48 25 Largest Independent Broker-Dealers by Number of Advisors .............................................................................53

Exhibit 6-49 25 Largest Bank Broker-Dealers by Number of Advisors ............................................................................................54

Exhibit 6-50 25 Insurance Bank Broker-Dealers by Number of Advisors ........................................................................................ 55

Exhibit 6-51 25 Largest Independent RIA Firms by June 2017 Total Assets ...................................................................................56

Exhibit 7-52 5-Year CAGR for U.S. Retirement Market by Segment, 2011–2016 .......................................................................... 57

Exhibit 7-53 Growth of Defined Contribution Plan Assets, 2007–2017P ........................................................................................ 57

Exhibit 7-54 Mutual Fund Assets in Defined Contribution Accounts, 2007–2016........................................................................58

Exhibit 7-55 Historical Target-date Mutual Fund Assets and Net Flows, 2007–2017P ................................................................59

Exhibit 7-56 Target-date Mutual Fund Assets Forecast ........................................................................................................................59

Exhibit 8-57 Funds in Europe, Cross-Border and Asia: Total Asset Change, Flows and Market Gains, 2010–2016 .................................................................................................................................................................................61

Exhibit 8-58 Funds in Europe, Cross-Border and Asia: Annual Assets and Net Flows, 2010–2Q’17 ........................................62

Exhibit 8-59 Funds in Europe, Cross-Border and Asia by Fund Type: Assets and Net Flows, 2010–Q2’17 ...........................62

Exhibit 8-60 Best-Selling Managers Globally, Active Funds Only, YTD 2Q 2017 ...........................................................................63

Exhibit 8-61 Largest Managers Globally by Assets, Active Funds Only: 2Q 2017 .........................................................................64

Exhibit 8-62 ETFs and Funds in Europe, Cross-Border and Asia: Asset Change and Net Flows, 2010–2016 .......................65

Exhibit 8-63 Index and Active ETFs and Funds in Europe, Cross-Border and Asia: Annual Net Flows, 2010–2016 ................................................................................................................................................................................65

Exhibit 8-64 Index and Active ETFs and Funds in Europe, Cross-Border and Asia: Annual Assets, 2010–2016 ...................66

Exhibit 8-65 Largest Managers Globally by Assets, Index Funds Only: 2Q 2017........................................................................... 67

Exhibit 8-66 Net Flows and AUM of ESG Funds in the U.S., local Europe and Cross-border Markets (in $billion) ..............68

Exhibit 8-67 Largest Managers Globally by Assets, ESG Strategies Only: 2016–2Q 2017 ..........................................................69

Exhibit 8-68 MiFID Timeline for Europe ...................................................................................................................................................70

Exhibit 8-69 Global Fund Actual and Projected Assets by Region, 2005–2022P ......................................................................... 72

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