PwC: Africa 2020 presents exciting opportunities for asset managers

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New research from PwC projects that traditional assets under management (AuM) in 12 markets across Africa will rise to around $1,098 billion by 2020, from a 2008 total of $293 billion. This represents a compound annual growth rate (CAGR) of nearly 9.6%

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25/06/2015 |
  • AM Africa 2020 COVER

The countries, which represent a sample from Northern, Eastern, Western and Southern Africa, were assessed by a range of relevant indicators in order to capture their true investment potential.  The countries were categorised into three groups: advancing markets, promising markets, and nascent markets. In addition, the report outlines and analyses the future game changers for investment into Africa as a whole as well as addressing the impacts for these specific markets

Dariush Yazdani, partner and PwC Market Research Centre Leader

Traditional asset management, in particular the mutual fund industry, is expanding aggressively across Africa. This will largely be driven by a number of factors: economic growth and the subsequent rise in wealth will boost the demand for pensions and life insurance products, the demand for retail investment funds will consequently increase, and the widespread adoption of technology will make delivery of new products cheaper, bringing more consumers into the formal financial sector.

The report, Africa Asset Management 2020, is an in-depth study which examines the asset management industry across 12 African countries which have financial markets of varying levels of development. 

Dariush Yazdani, PwC Luxembourg Market Research Centre Leader says: “The countries, which represent a sample from Northern, Eastern, Western and Southern Africa, were assessed by a range of relevant indicators in order to capture their true investment potential.  The countries were categorised into three groups: advancing markets, promising markets, and nascent markets. In addition, the report outlines and analyses the future game changers for investment into Africa as a whole as well as addressing the impacts for these specific markets.”

Ilse French, PwC Africa Asset Management Leader, says:  “As Africa has entered the 21st century, economic growth has surpassed expectations and stimulated investor interest across a broad range of asset classes. Although the fund industry in Africa is, in most countries, still developing and has much to prove, global and local asset managers are likely to become more active as the industry continues to flourish.”

In this report PwC also predicts that:

  • The rise in the volume of investable assets which has taken place over the last two or three decades is set to continue to increase in the future and investable assets are set to be significantly higher in 2020 than today.
  • Recent research conducted by PwC projects that global AuM will rise to around $101.7 trillion by 2020. Although Africa is a small part of the global industry it is a region that is experiencing significant growth. In addition, the report shows that a large part of institutional assets are managed by asset managers through mandates, with this portion being larger for promising and nascent markets in comparison to advancing markets. This African share is estimated to be between 75% and 95% depending on the level of maturity of the market.

“Retail investors form a small proportion of investors in asset management. However, the report suggests that the number of retail investors in these markets could be increased by way of education about products, encouragement of a savings and investment culture, and overall economic growth”, comments Dariush Yazdani.

Game changers: global megatrends
“Significant global and continent megatrends, we refer to as the ‘game changers’, will also help drive the market and create future opportunities,” says French.

“Africa’s demographic dividend, its growing middle class, its increased use of technology, and its rapid urbanisation will all have a part to play in the development of the asset management industry in Africa”, adds Yazdani.

Development of the African financial services industry
The 12 countries in this study vary from those with extensive legislative frameworks, such as South Africa, to those in much earlier stages in the development of their regulatory frameworks, such as Angola.

Regulatory reform is likely to boost economic growth and stimulate investor appetite. Changes to regulations to pension funds in particular could have an effect on the asset management industry as public pensions are usually the largest institutional investors in many African countries. These changes include allowing pension funds to invest in a wide range of assets or the establishment of a three tier pension system in those markets where there is demand.

In addition, sovereign wealth funds (SWFs) can fill existing funding gaps until the legal frameworks of African countries develop sufficiently to make them appealing to other investors. “As large institutional investors, SWFs could provide a considerable boost to the asset management industry in Africa, particularly because they are long-term investors who seek stable returns,” adds French. The fact that most of the funds use a proportion of their assets to make impact investments domestically or regionally suggests that they will become big players in local markets.

“As asset managers look for new investment channels and competition becomes increasingly intense, understanding the characteristics of the local markets will be crucial to grasp the potential of this final frontier,” concludes French.

Download the full report at www.marketresearchcentre.pwc.lu or visit the site at http://www.amafrica2020.com

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