PwC: Infrastructure costs are squeezing asset managers' margins

Fee pressure and the burden of legacy systems

PwC's study, Global Asset Management Infrastructure: Rethinking the industry's piping, says asset managers face increasingly important decisions about which capabilities to develop in-house, which to buy and which tasks to entrust to partners. The research found that profit per dollar of assets under management has fallen 19 percent since 2018, with a further 9.1 percent decline forecast by 2030.

Some 67 percent of respondents said fee compression is limiting their investment opportunities. Many companies still allocate a significant share of their technology budgets to maintaining existing systems. Just 23 percent spend the larger share of their budget on building new capabilities, while 29 percent devote more than 70 percent of their technology budget to maintaining legacy systems.

Data fragmentation is hindering AI adoption

PwC prepared the report based on responses from 150 asset managers and 50 infrastructure providers. The responses suggest that the use of artificial intelligence is further intensifying existing constraints. Around 24 percent of participants cited data fragmentation, while 17 percent identified legacy systems among the most important barriers to deploying AI at scale.

Roland Kastoun, PwC's global asset and wealth management consulting leader, said the industry's profit per dollar managed has fallen by almost one-fifth while the costs of the underlying infrastructure continue to rise. The PwC executive said that over the next five years, the asset managers most likely to remain competitive will be those that first resolve the fundamental, often less visible problems in their operations, rather than necessarily those with the most sophisticated AI system.

Market data is expensive relative to its added value

Some 58 percent of survey participants ranked market data among the infrastructure elements that are most expensive relative to the value they add. This was higher than the share citing regulatory reporting systems, at 47 percent, and core technology platforms, at 46 percent.

Meanwhile, nearly 70 percent of infrastructure providers expect to capture a larger share of the industry's revenue. Some 68 percent of respondents identified hyperscale cloud providers as the most important emerging threat. Björn Ebert, PwC Luxembourg's financial services leader, said this shows that the balance of power within the sector is quietly shifting toward service providers.

Hybrid sourcing could become the most common approach

When developing operating capabilities, 44 percent of respondents prefer a hybrid model combining internal development, external sourcing and partnerships. Exclusive acquisitions were selected by 21 percent, partnerships by 18 percent and fully in-house development by 13 percent.

The report identifies four new infrastructure archetypes: infrastructure orchestrators, digital and tokenization platforms, modular specialist providers and integrated asset managers. PwC says there is no one-size-fits-all model. Asset managers must decide which assets to keep under their own control, which processes to standardize and where a specialist could perform the work better. According to the source, companies that make these decisions in time will be better positioned to protect their margins through 2030.