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Confidential

April 2015

A conversation on:

Global Trends in AssetManagement

PwC

Agenda

AssetManagement2020

GlobalObservations

1 2 3

Asset management 2020: A brave new world

PwC

Asset management 2020

Asset management 2020: A brave new world3

January 2015

Year 2020

The landscapeMegatrends AM Game changers

Demographic shifts

Climate change and resource scarcity

Shift in economic power

Technological breakthroughs

Rise of state-directed capitalism

Accelerating urbanisation

Huge rise inassets and

shift in investorbase

New pressuresand priorities

Increasingtransparency and

regulation

Alternatives become more mainstream,passives are core and ETFs proliferate

4

Asset Management moves centre stage1

Distribution is redrawn2

New breed of global managers5

Fee models are transformed3

Asset management enters the21st century

6

PwC

How will the landscape change by 2020?

4Asset management 2020: A brave new world

Global investable assets for AM will increase to US$102 trillion by 2020,supported by a number of key trends…

• The rise in retirement savings as the aging of the world’s population continues, and linked to the changing nature of retirementassets;

• The increased weight of the Sovereign Wealth Fund (SWF) market as new SWFs are formed and assets double;

• The shift in South America, Africa, Asia, Middle East (SAAAME) markets from savings to investing cultures;

• The rise in wealth accumulated by High Net Worth Individuals and the mass affluent; and

• The increasing polarisation of active and passive.

However regulatory pressures, combined with customer demand, will cause…

• A continuing focus and demand on global and local regulatory compliance;

• Access to portfolio-level data to become the norm;

• Asset managers to build extensive Know Your Customer (KYC) and Anti-Money Laundering (AML) systems;

• Anti-tax avoidance measures to be a key focus; and

• All participants in the chain of manufacturing and distribution of the investment products to be accountable.

January 2015

PwC

Asset management 2020 – The six critical gamechangers…

5

1

Asset managementmoves centre stage

No longer in the shadows ofits cousins in the bankingand insurance industries.

2

Distribution isredrawn

Distinct regional funddistribution blocks will formallowing products to be soldpan-regionally.

3

Fee models aretransformed

Major territories will haveincreased regulation thatimproves disclosure andaligns interests with theinvestor.

4

Alternatives becomemore mainstream

Traditional activemanagement will grow at aless rapid pace than passiveand alternatives.

5

New breed of globalmanagers emerge

With highly streamlinedplatforms providingtargeted solutions for thecustomer.

6

Asset managemententers the 21st century

Technology becomesmission critical.

Asset management 2020: A brave new world January 2015

PwC

1. Asset management moves centre stage

6

AssetManagement

PrioritiesProduct

innovation

Relationshipwith policymakers

Education :policy

makers;regulators;

public and press

Governance andtransparency

Contraction of thebanking and insurancesectors

Regulation will hinder banks andinsurers by forcing them to abandonproprietary investing and other noncorebusinesses.

Retirement andhealthcare costs

As the world ages, retirement andhealthcare will become critical issueswhere asset management could play akey role.

Urban growth andinfrastructure needs

Asset managers will become moreimportant in the capital raising anddeployment required to support growingurbanisation and cross-border trade.

SWFs growth

Asset managers will be at the centre ofefforts by SWFs to diversify their hugepools of assets.


PwC

2. Distribution is redrawn

By 2020, four distinct regional fund distribution blocks will have formed that will allow products to be sold pan-regionally.

7

Main hubs for cross-border distribution

Today

Europe

Chile

HK

Singapore

Taiwan

2020

Europe

NorthAsia

SouthAsiaLatin

America

Links between regional hubs


PwC

3. Fee models are transformed

By 2020 virtually all major territories will have introduced regulation to better align interests withthe end customer:

8

Increasingtransparency on feesthat an adviser chargesa customer.

Introduction ofregulation to betteralign interests for theend customer.

Rapid development oflower cost modelscentered aroundpassive and ETFproducts.

Different distributionmodels will emerge.Investors will becomemore self-directedwith increased use ofsocial media.

The value chain willre-structure as thebalance of powershifts from theinvestment manager tothe customer.


PwC

4. Alternatives become more mainstream – a US $13 trillion market by2020

Alternatives and passive investments combined will represent 35% of total assets managed by theindustry; and

ETFs will continue to gain momentum globally across all channels.

11%

10%

79%

AuM in 2012(USD trn)

Passive Alternative Active

7.3

6.4

50.2

22%

13%65%

AuM in 2020(USD trn)

Passive Alternative Active

22.7

13.0

66.0

PassiveETFs

AuM 2020

$6.8 trnActive ETFs LeveragedETFs

Smart Beta

Projection of active, alternative and passiveinvestment within global AuM towards 2020

..and ETFs proliferate

Source : PwC analysis. Past data based on ICI, Lipper, Hedge Fund Research, Preqin, The City UK and Towers Watson.


9January 2015

PwC

5. New breed of global managers


• Successful managers will think globally and act regionally;

• Creation of new regional blocks and new fund platforms will place an emphasis on cost,scale and efficiencies;

• Economies of scale will become more important;

• Asset managers will need to create new distribution platforms;

• Branding will become important not just for scale but also for capital raising; and

• Remuneration models will be more aligned with investor needs rather than those of thefirm.

January 2015

PwC

6. Asset management enters the 21st century

11

Asset managementplayers

• 40% of the top assetmanagers are notactively involved insocial media and only15% of asset managersactive on social mediaare interactive; and

• More than a quarter ofasset managers arenot sure whether theuse of mobiletechnology fordistribution orcommunication wouldplay a critical role intheir business.

Social media

Big data

Cloud

Digital intelligence

CRMs

Drivers

Tailored products

Accurate and timelyinformation

Cost reduction

Interactive communication

Efficiency and control

POTENTIAL NEWENTRANTS ?

Today Consequences Tomorrow

AM

fund data?

fund platform

?

?

fund platform

?


PwC

Agenda

AssetManagement2020

GlobalObservations

1 2 3


PwC

PwC discussions with the market leaders…

13

The early market leaders have justified their new consumerpricing and distribution models under the new regulatoryregimes.

• Can multi-asset class strategies be tailored todeliver a risk approach for the mass affluent?;

• We are seeing the first large employers tryingto provide a set of tailored retirement optionsfor their staff, e.g. decumulation products;

• Big asset management firms, eveninstitutional, are asking ‘do we understand thecustomer?’; and

• They are all agreeing they need to focus andexecute.

Leading CEOs are starting to focus their strategy anddevelopment based upon what the customer wants in the newworld and what they are willing to pay for.

The market has not delivered an accumulation and decumulationlife-time proposition approach.

We are now in the second generation of lifestyle and target datefunds, which will encompass a variable retirement date anddecumulation needs.

Customers have varying risk profiles and needs, which requires aflexible approach to products and solutions.

And the key points…


PwC

What we are observing today…

14

UKRDR now embedded andthe provider positionsclarified

France

Regulator supportsban on inducementsfor discretionaryportfolio services

Germany• Inducement ban limited to fee-

based/independent investment advice anddiscretionary portfolio mgt.

• With inducement-based/restrictedinvestment advice, inducements may beretained in due consideration of otherregulatory requirements(e. g. quality of service, transparency)

Netherlands

• Advisory price warstarted

• Real debate on howleaders can survive

India

The SEBI has introducednew regulations that wentinto force from 20 April2013, which restrictcommissions onInvestment Advisorybusiness

EUMiFID II – we now have clarity. The view of mostCEOs, and PwC, is that this will not water downthe ‘RDR’ approach

Singapore

All indicators are that Regulator willendorse an ‘RDR’ approach. Very focusedon the customer

Switzerland

Recognising a full RDR model is likely

China and HongKong

Regulation TBD asfunds regimeestablished

U.S.

• Pension Protection Act(PPA) of 2006

• 2012 legislation mandating401(k) participants haveaccess to detailedinformation related to fees,expenses and uniforminvestment-relatedinformation

Australia

• Future of Financial Advice (FOFA)regulation is in effect from July 2013

• No Australian players yet to show globalperspective and winning strategy

Source: PwC AnalysisNB: Some of these regulatory developments are proposals and thereforeare directional and thematic, with final rules expected later


PwC

Founded on insight from c.4000 customers, PwC have successfullyidentified customer value drivers to generate revenues in a post-RDRworld – UK, Europe and Singapore


PropositionComponent

Proposition Attribute (1) Description Price impact (% of totalproposition component price)

Advice(100%)

Tailored serviceService focused on customer needs with advisers demonstrablyworking in their best interests 32%

Specialist knowledgeAdvisers are positioned and perceived as possessing specialistknowledge , which customers cannot get from elsewhere 6%

Active managementService beyond the sale –where someone is actively managingtheir money and sending them regular updates, generatingengagement

4%

Whole of marketperspective

A proposition that takes the customer on the journey to show awide range of options are considered rather than the defaultproduct

32%

Reputable advice brandCustomers perceive the brand to be associated with and whichdelivers a strong level of service, customer-centricity andspecialism

26%

Products(100%)

Differential pricingBespoke pricing by channel, alliance partner and customersegment 17%

Flexible paymentmethods

Providing customer the ability to pay by directly (e.g. cheque,direct debit) or having the advice fee deducted from the product 33%

Understandingcustomer risk profile

Advice reflects a customer’s risk appetite and profile 40%

Product brandCustomers want a product brand that denotes specialism todeliver their outcomes e.g., investments, wealth, retirement 10%

Services(100%)

Platform-enabled valueadded services

e.g. Consolidated reporting, integrated across channels, andavailable on digital devices 100%

1

2

3

4

5

6

7

8

9

10

January 2015

PwC

Europe and Asia are responding to the regulatory and customer trendswhich are having a profound impact across the value chain…


Manufacturing

• Downward price and margin pressureexpected

• Loss of key lever of securing distribution(end of retrocessions/rebates)

• Flight to passives likely to continue

• Greater scrutiny of performance and clientoutcomes

• Some creating direct to customerpropositions and focusing on theworkplace channel

Platforms

• Majority facing downward pricing pressure

• Ban on rebates/retrocessions challengingeconomics

• Consolidation is inevitable

• Some firms will exploit the revenuepotential of providing value added servicesand enabling digital wealth solutions

Distribution

• Some have maintained pre-RDR revenuelevels

• Most high-street players exiting mass-market advice

• Different propositions and pricingstrategies will continue to emerge

• Ongoing advice will be the keybattleground

• Focus from incumbents and new entrantson direct to customer, guided self-servepropositions

Competing on scale and brand Driving differentiationEnabling integration

…the industry is moving closer to the customer

January 2015

PwC

The overall revenue creation across the whole value chain is falling…

17

PlatformsProduct

providersAsset

managers

5 bps

PreRDR*

Today*

Cost of advice generally increased fromDay 1, due to businesses trying to claimback and protect revenue

During the last 3 years, competition onprice has been intensive with qualityand scale being key targets for all keyplayers leading to a significant pricereduction

Distribution

75 bps 75 bps

Asset Management businesses arealready suffering from reduction of IFAbusiness and competition on price hasalready led to reductions ,e.g L&G now10bps for the FTSE100 tracker

75 bps

25 bps 100 bps

0 bps5-20 bps

Reduction in the cost of advice, asconsumers become more confident andmove towards Guided Self-Service(GSS) or a combination of advice andGSS

10-40 bps

Pressure on the market will continue todrive down the costs for fundmanagement, especially as morecompanies take this in-house

Consolidation will lead to a reduction inthe cost to use a platform, withplatforms providing a basic service , andthose who can add pro active clientmessaging charging more

15-20 bps 75 bps2015*

*Based on £100k - £2m investable assets

Source: PwC analysis based on interviews with 60 Board Members in the industry

Total

140-180 bps

95-115 bps

225 bps


PwC

The growth of global investable assets will bedriven by five main trends :

• The rise in retirement savings as the agingof the world’s population continues;

• The increased weight of the SWF marketas new SWFs are formed and assetsdouble;

• The shift in emerging markets fromsavings to investing cultures;

• The rise in wealth accumulated by HNWIsand mass affluents.

• The move by traditional Defined Benefitsin developed markets into Alternativeinvestments.


Global AUM Projection for 2020Base case

16.1

25.4 27.0

41.2

18.7

28.830.4

47.2

2.5

5.36.4

13.0

0

20

40

60

80

100

120

2004 2007 2012 2020

Mutual Funds Mandates Alternative Investments

= CAGR

28.5%

15.4%

16.3%

3.8%

1.1%

1.3%

9.3%

5.7%

5.4%

101.7

6.0%

1.4%

16.8% 63.959.4

37.3

AuM in USD trn

January 2015

PwC

• From 2012 to 2020, the growth rate ofglobal AuM will be lower in non-SAAAMEregions than in SAAAME regions.

• This is due to the fact that the rise inwealth is greater in SAAAME than in non-SAAAME regions.

• In addition, the market is more mature innon-SAAME than in SAAAME regions.


Global AuM projection for 2020 by RegionBase case

19.9

30.1 33.2

49.412.9

21.019.7

27.9

3.9

6.47.7

16.2

0.6

1.62.6

6.7

0

20

40

60

80

100

120

North America Europe Asia Pacific Latin America Middle East and Africa

18.5%

17.5%

14.8%

3.6%

-1.2%

2.0%

9.8%

4.4%

5.1%

101.7

63.959.4

37.3

AuM in USD trn

35.9% 10.4% 12.5%

87.5% 8.8% 11.9%

= CAGR 1.5

January 2015

PwC

• Traditional active management willcontinue to be the core of the assetmanagement industry.

• However, we believe that activeinvestments will grow at a much slowerpace than passives and alternatives.

• While investors will continue to invest inthe stock market in order to diversify theirportfolios, they will be more cautious dueto the high volatility experienced in recentyears. An exposure to passive investingwill offer a market exposure at lower costsand accelerate the trend towards investingin alternatives.


Global Active Investments AuM Projection for 2020Base case

17.6

26.5 26.6

35.3

15.1

23.3 23.6

30.8

0

10

20

30

40

50

60

70

2004 2007 2012 2020

Mandates Investment Funds

= CAGR

15.6%

14.7%

0.2%

0.1%

3.4%

3.6%

3.5%

0.1%

15.1%

Global Active Investments in USD trn66.0

50.249.8

32.7

January 2015

PwC

• As previously stated, passive investmentswill show dramatic growth between nowand 2020. In particular, innovation suchas factor investing will fuel interest inpassive products.

• This growth will also be driven byinvestors’ search for low cost and feetransparency in combination with thetrend toward more diversified portfolios.

• The use of ETFs will significantly broadenas the level of sophistication increases.

• BlackRock, SSGA, Deutsche and other topasset managers have dramaticallyincreased their ETF offerings during thelast decade which has stimulated theirdevelopment of new innovative products ,including active ETFs.


Global Passive Investments AuM Projection for 2020Base case

1.22.3

3.9

12.2

1.0

2.0

3.4

10.5

0

5

10

15

20

25

2004 2007 2012 2020

Mandates Investment Funds

= CAGR

26.5%

25.1%

11.0%

11.3%

15.0%

15.4%

15.2%

11.1%

25.7%

Global Passive investments in USD trn

22.7

7.3

4.3

2.2

January 2015

PwC

• HNWI assets are expected to rise to morethan USD 76 trn by 2020.

• This increase is higher for SAAAME andAsia-Pacific regions due to demographicchanges and the shift from a savings to aninvesting culture.


Global HNWI Asset Projections for 2020 by RegionBase case

15.820.7 21.7

30.6

14.3

19.2 17.0

21.6

7.3

9.3 12.7

22.6

0.4

0.70.9

1.9

0

10

20

30

40

50

60

70

80

90

2004 2007 2012 2020

North America Europe Asia Pacific Latin America Africa

8.4%

10.2%

9.4%

6.3%

-2.5%

1.0%

7.5%

3.1%

4.4%

76.9

52.450.1

37.9

HNWI assets in USD trn

22.5% 7.7% 9.0%

20.9% -0.4% 6.0%

= CAGR 0.3

9.7%

0.9%

4.9%

January 2015

PwC

• In line with HNWI, mass affluent assetswill experience an upsurge in SAAAMEcountries.

• The mass affluent in SAAAME regions willmore than double their wealth between2012 and 2020. with Asia representingthe largest middle class, unseatingEurope.

• This trend is supported by the EuropeanEnvironment Agency which predicts theglobal middle class to grow by 180%between 2010 and 2040, with Asia hometo the highest proportion of the middleclass.


Global Mass Affluent Assets Projection for 2020 by Region

10.0 13.0 13.720.1

19.3

25.8 22.8

31.611.9

15.1 20.5

43.3

0.8

1.42.1

4.5

0

20

40

60

80

100

120

2004 2007 2012 2020

North America Europe Asia-Pacific Latin America Africa

8.4%

10.2%

9.4%

6.3%

-2.5%

1.0%

9.8%

4.2%

4.9%

100.4

59.555.8

42.1

Mass Affluent assets in USD trn

22.5% 7.7% 10.1%

20.9% -0.4% 10.1%

= CAGR 0.9

9.9%

1.3%

6.8%

January 2015

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in thispublication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in thispublication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care forany consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2014 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is aseparate legal entity. Please see www.pwc.com/structure for further details.

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