AI Outperforms Fund Managers: "Robo Advisor Market to Reach $6 Trillion"

PwC Outlook
"16% of Asset Management Firms to Disappear by 2027"

With the advancement of generative artificial intelligence (AI) technology, the robo-advisor market is expected to expand to $6 trillion (approximately 7,800 trillion KRW) by 2027, doubling its current size. As AI expands its scope and rising costs due to high inflation and high interest rates coincide, it is anticipated that 16% of existing asset management firms based on fund managers will disappear within four years.

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According to PwC, a global accounting and consulting firm, on the 10th (local time), the robo-advisor market is expected to grow from $2.5 trillion (approximately 3,270 trillion KRW) in 2022 to $5.9 trillion (approximately 7,710 trillion KRW) by 2027 due to the development of generative AI technology. Robo-advisors are financial services that automatically allocate assets based on AI algorithms to provide investor-customized portfolios. Their fees are lower than those of products where fund managers select stocks for investment.

In a survey conducted by PwC of 500 asset managers and institutional investors, 90% of asset management companies responded that technologies such as AI, big data, and blockchain would increase asset management returns and attract younger investors. Proactive financial companies have already begun acquiring robo-advisors. Earlier, US-based JP Morgan acquired the UK robo-advisor Nutmeg for $700 million (approximately 910 billion KRW) in 2021.

Fees associated with asset management are expected to decrease further. Fees for 'passive funds,' which track index fluctuations, and 'active funds,' where fund managers actively select stocks for investment, fell to as low as one-fifth of the levels seen five years ago in 2017.

Many asset managers and institutional investors predicted that the position of existing asset management companies would gradually narrow. According to the PwC survey, respondents expected that 16% of existing asset management companies would disappear by 2027 due to closures or mergers and acquisitions (M&A). Although costs such as labor increased due to inflation, it became difficult to generate returns above market interest rates as volatility expanded with high interest rates. Consequently, the assets under management by asset management companies decreased from $127.5 trillion (approximately 16,658 trillion KRW) in 2021 to $115.1 trillion (approximately 15,380 trillion KRW) in 2022. Performance fees also declined due to the sluggish stock market. Given this situation, 73% of respondents said that asset management companies were considering mergers with competitors due to worsening market conditions.

PwC explained, "Currently, the asset management industry faces significant cost and margin pressures," adding, "We are witnessing the rise of new investment firms based on AI technology-driven asset management companies."

This content was produced with the assistance of AI translation services.