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June 15, 2020updated 22 Jun 2020 12:13pm

COVID-19: Private wealth managers entered recession in good nick

By GlobalData Financial

As the world economy stumbles into recession due to the COVID-19 pandemic, certain parts of the banking world will hold up better than others, including private wealth. Wealth management is likely to fare best out of all banking divisions, even with the selloff in the markets. However, much of the work that went into improving profitability in recent years will be reversed as revenue drops, even as costs continue to grow.

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Analyze opportunies within the wealth management market in APAC

GlobalData’s ‘Asia-Pacific Wealth Management: Market Sizing and Opportunities to 2026’ report provides a comprehensive overview of the Asia-Pacific (APAC) wealth management market.
  • The report analyzes the APAC wealth and retail savings and investments markets. This includes affluent market size, both by number of individuals and the value of their liquid assets.
  • The affluent population grew by 5.3% in 2021 and is expected to grow at an AAGR of 4.8% between 2022 and 2026.
  • The value of liquid assets held by the affluent segment surged by 8.4% in 2021, backed by economic recovery. HNW individuals’ financial wealth grew by 12%, while mass affluent individuals’ wealth grew by 6.0%.
  • The report provides an analysis of factors driving liquid asset growth. It is also split into asset classes - equities, mutual funds, deposits, and bonds.
  • The affluent population are more risk-tolerant and invest a significant proportion of their investments in risky assets such as equities, compared to emerging affluent and mass market individuals.
The report also provides data and insights on the size of offshore holding of HNW investors in the APAC region.
by GlobalData
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The leading wealth managers around the world entered 2020 in a relatively strong position with a stellar year for client assets, driven both by a buoyant market and positive client inflows. The cost-to-revenue ratio also improved after a couple of stagnant years, driven mostly by higher revenues significantly outpacing growth in costs. However, this will all go into reverse in 2020.

After the initial spike in revenue, driven by clients trading into the downturn, GlobalData expects revenue for the rest of the year to be rather subdued as lower assets under management (AUM) begins to bite, even as wealth managers book sizable increases in costs due to the pandemic disruptions.

Based on the past spike in costs to revenue recorded in the aftermath of the global financial crisis and its attendant recession, we see this all-important ratio returning to levels not seen since 2015. While this means the world’s largest wealth managers and private banks will remain profitable in aggregate, there are a number of lean years ahead for many, particularly smaller players and boutiques that might lack these giants’ economies of scale.

In addition, improvements in the cost-to-revenue ratio are hard won by the wealth management industry, with the global financial crisis causing continued deterioration in profitability years after the recovery was well underway. It was only in 2012 that profitability began to grow again in wealth management and 2014 when ratios got back into shape.

While private wealth management will not see the oceans of red ink that retail and commercial banking will as loans sour in the recession after Covid-19, expectations of profits clearly need to be downsized for some years to come.

Past trend suggests lower AUM and tighter margins for wealth managers in 2020

covid-19 private wealth

Source: GlobalData Wealth Management Competitor Analytics

Free Report
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Analyze opportunies within the wealth management market in APAC

GlobalData’s ‘Asia-Pacific Wealth Management: Market Sizing and Opportunities to 2026’ report provides a comprehensive overview of the Asia-Pacific (APAC) wealth management market.
  • The report analyzes the APAC wealth and retail savings and investments markets. This includes affluent market size, both by number of individuals and the value of their liquid assets.
  • The affluent population grew by 5.3% in 2021 and is expected to grow at an AAGR of 4.8% between 2022 and 2026.
  • The value of liquid assets held by the affluent segment surged by 8.4% in 2021, backed by economic recovery. HNW individuals’ financial wealth grew by 12%, while mass affluent individuals’ wealth grew by 6.0%.
  • The report provides an analysis of factors driving liquid asset growth. It is also split into asset classes - equities, mutual funds, deposits, and bonds.
  • The affluent population are more risk-tolerant and invest a significant proportion of their investments in risky assets such as equities, compared to emerging affluent and mass market individuals.
The report also provides data and insights on the size of offshore holding of HNW investors in the APAC region.
by GlobalData
Enter your details here to receive your free Report.

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