PwC research: Institutional investors expect AI to drive revenue growth, most consider strategic partnerships

As many as 81 percent of institutional investors and asset managers are considering strategic partnerships for consolidation or mergers and acquisitions to enhance technological capabilities and build an ‘expanded technological ecosystem’. The goal of these activities is to foster innovation, expand into new markets, and democratize access to investment products, ahead of a significant transfer of wealth. Four-fifths (80 percent) of asset and wealth management firms believe that disruptive technologies such as artificial intelligence will drive revenue growth.

These are the results of PwC’s Asset and Wealth Management report for 2024, which covered 264 asset managers and 257 institutional investors from 29 countries and territories, showing that organizations that quickly adopt the concept of ‘technology as a service’ could achieve a potential revenue increase of 12 percent by 2028.

– Disruptive technologies such as artificial intelligence are transforming the asset and wealth management sector, driving revenue growth, increasing productivity, and enhancing efficiency. Market participants are increasingly turning to strategic consolidation and partnerships to develop technology-driven ecosystems, remove barriers in data management, and transform their service offerings, preparing for a significant transfer of wealth, where affluent groups and younger generations will play an increasingly important role in shaping service demands – said Albertha Charles, global leader of consulting services for the asset and wealth management sector, PwC UK.

She emphasized that if they want to become leaders in the digital market, asset management firms must invest in technological transformation while also focusing on employee development by enhancing their digital skills, thereby maintaining their competitiveness and innovation.

Damir Kecko, partner in the Transactions Department of PwC Croatia, explained that the use of AI tools in the asset & wealth management industry primarily depends on the area in which they are applied.

– Until recently, the focus was on processing large amounts of data (data mining) to create databases and gain access to information. Today, however, the focus has shifted to sourcing and screening new investment opportunities (or in specific industries of interest) as well as understanding the data they have, connecting it to gain a fuller picture – said Kecko.

Disruptive technologies will drive revenue growth for asset management firms

Asset management firms generally consider disruptive technologies such as artificial intelligence to be transformational factors, and nearly three-quarters (73 percent) believe they will be the most transformative technology in the next two to three years.

Furthermore, 80 percent of respondents believe that such technologies will drive revenue growth, while 84 percent highlight that they will improve operational efficiency, and 72 percent believe they will enhance employee productivity. According to PwC’s analysis, providing technology as a service by asset management firms could result in a 12 percent revenue increase by 2028. Only 20 percent of asset management firms currently use revolutionary technology to improve personalized investment advice.

The main driver is alternative investments

According to baseline projections, PwC’s research estimates that by 2028, global assets under management (AUM) held by asset and wealth management firms will reach $171 trillion, representing an average annual growth rate (CAGR) of 5.9 percent and marking an increase from five percent last year. Alternative investments are expected to grow significantly faster, with a CAGR of 6.7 percent, reaching $27.6 trillion by 2028.

As asset and wealth management firms seek new growth opportunities, tokenization appears to be key, and PwC predicts that by 2028, tokenized products will increase from $40 billion to over $317 billion, representing a CAGR of 51 percent. Tokenization, or fractional ownership, could expand market offerings by democratizing finance and reducing premiums. In the segments of private equity (53 percent), capital (46 percent), and hedge funds (44 percent), asset management firms are leading in plans to introduce tokenization.

Talent is a priority

In this context, 30 percent of asset management firms currently face a shortage of relevant skills and talent, while 73 percent of those considering mergers and acquisitions cite access to qualified professionals as the main motivation for deals in the next 2-3 years. While asset and wealth management firms grapple with digital disruptions and the need to expand talent and product funds, more than four-fifths (81 percent) are considering strategic partnerships, consolidations, or mergers and acquisitions to build an expanded technological ecosystem and drive growth.

– The report emphasizes the urgent need for asset and wealth management firms to reassess their investment strategies. Long-term sustainability depends on a radical, fundamental, and continuous transformation of how organizations create and deliver value. Strategic partnerships and consolidation will be key factors in building technological ecosystems that will enable faster transfer of ideas and expertise. Smaller players will be able to quickly and cost-effectively upgrade their systems, while larger firms will gain access to talent and key data for growth, especially in the context of transforming the investment management landscape with new technologies such as artificial intelligence – concludes Albertha Charles, global leader of consulting services for the asset and wealth management sector, PwC UK.