The tables are turning for the largest players in finance.
For years, asset management firms have benefited as the banking industry was dragged down by quantitative easing and increasing regulation. This one-two punch spurred a more than $100 billion divergence in revenues since 2011, with asset managers up $65 billion and wholesale banks down $45 billion at the end of 2016, according to new research from Morgan Stanley and Oliver Wyman.
But now, with asset managers facing intense pressure on fees and with economic policy shifting in favor of banks, the two firms predict a reversal of fortunes for the two sectors.
In their joint report, Morgan Stanley and Oliver Wyman forecasted a $15 billion increase in revenue for wholesale banks over the next three years as a result of regulatory easing and rising rates. Simultaneously, they expect a $9 billion decline for asset management firms as falling margins outweigh gains from modest growth in assets under management.
For asset managers, these pressures will trigger cost cuts and consolidation, as well as force managers to rethink their business models. The researchers predicted a re-engineering of active asset management as seizing alpha opportunities becomes more critical than ever, including growth in high active share funds, unconstrained strategies, and risk factor approaches.
Banks, meanwhile, are expected to further capitalize on the growth opportunities presented by changing economic policy through implementation of new cost-cutting technology. Potential easing of capital requirements could also drive growth in capital-intensive activities. The evolution of the industrys revenue base will continue, with earnings increasingly stemming from corporate clients as asset managers are pressured.
In the reports best-case scenario, larger fiscal stimulus, corporate tax reform, and deregulation could drive wholesale bank revenue up 7 percent per annum between now and 2019. However, should new policies fail to deliver, banks could experience a boom and bust and see revenues fall 8 percent annually over the same period.
Asset managers, meanwhile, could see a 30 percent drop in revenue by 2019 in a worst-case scenario where economic growth fails to materialize. However, should growth accelerate, boosting confidence and assets under management while lessening fee pressure, Morgan Stanley and Oliver Wyman projected a best-case outcome of 17 percent growth in revenue.