Rebooting the global asset management industry

24 Rebooting the global asset management industry New Client Segments Are Set to Drive Organic Growth In all pension jurisdictions, risk is being increasingly personalized. Employers are de-risking their balance sheets by shedding volatile liabilities related to final-salary defined benefit (DB) pension plans. Even formerly rock- solid DB markets such as Canada, Japan and the Netherlands are transitioning employees into defined contribution (DC) plans where employees bear all the investment risks. The implied shift is expected to significantly grow the asset base of DC plans over the next three years (52%), as shown in Figure 2.2. Ever more Asian countries like China, India and Malaysia are promoting DC plans. There and elsewhere, the current DC ecosystem has been siloed by its three phases: accumulation, when the plan balances build up during a member’s working life; decumulation, when the member retires; and wealth transfer, when the member passes away. Lately, progress has been evident in combining the first two phases via target date retirement funds that allow drawdowns in the retirement phase. In parallel, the huge intergenerational transfer of wealth between the post-War Baby Boomers and their heirs is now in progress (59%). The main beneficiaries will be Generation X (born 1965- 80) and Generation Y (1981-94). Their rise as investors is coinciding with a concerted push to convert savers into investors (54%). For example, the European Commission’s latest proposal aims to redirect €10 trillion from low- interest bank accounts to investment products with higher return potential. Likewise, the UK government is considering reducing the tax breaks of the popular low-return Investment Savings Accounts (ISAs), so as to re-channel funds into higher-return vehicles as reported by the Financial Times (March 26, 2025). The result is likely to be the rise of mass affluent investors (49%). Many among them will be digitally savvy (45%), resulting in increasing demand for digital-first experiences but allied closely to human advisors whenever needed. In the U.S., for example, such investors opened some 25 million brokerage accounts at the outset of Covid-19, according to a 2021 McKinsey study, Crossing the Horizon . They are more engaged than their predecessors. Being digitally savvy, these investors are using digital investment platforms on a scale unimaginable before the pandemic. Hence, when doing portfolio construction and stock selection, they expect their asset managers to offer predictive analytics with forecasting tools, while flagging operational risks and untoward activities in cyberspace. Being digitally savvy, these investors are using digital investment platforms on a scale unimaginable before the pandemic. Figure 2.2 Which investor base factors, if any, will drive organic growth in your business over the next three years? Source: Citi/CREATE-Research Survey 2025 % of respondents Huge intergenerational wealth transfer Regulatory push converting savers into investors Rise of digitally savvy investors Rise of mass affluent investors Growth of outcome-oriented thematic funds Continuing shift from DB to DC pension plans 54 52 49 46 45 59 “The personalization of risk will bring institutional-quality tools in the retail space to replace the one-size-fits-all approach.” “Pension investing in Asia is set to take off with the rapid rise of a mass affluent middle class well versed with technology tools.” Interview Quotes