Asset Management Industry Market Sizing:

Asset Management Industry Market Sizing: 2017 2022 December 2017

Asset Management Industry Market Sizing: 2017 2022 Analysis of External Fund Distribution Costs U.S. For questions or further information regarding this report, please contact Jeff Strange (jeffrey.strange@strategic-i.com) or research@strategic-i.com. For information on any SI product, please call +1-212-217-6884 or email clientservice@strategic-i.com For sales inquiries, please contact: Americas: sisales.americas@strategic-i.com / +1 212 217 6884 EMEA: sisales.emea@strategic-i.com / +44 800 074 057 DISCLAIMER: The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) may not be copied or redistributed for any purpose, (c) are provided solely for information purposes, and (d) are not warranted or represented to be correct, complete, accurate, or timely. Past performance is no guarantee of future results. Reproduction in whole or in part prohibited except by permission. Any data or commentary in this report is for the internal use of the client only and is not to be disseminated to the general public and sales intermediaries in the form of regulatory or other reports, promotional material, or advertising without the prior written consent of SI. This report has been prepared using information and sources we believe to be reliable; however, we make no representation as to its accuracy, adequacy or completeness, nor do we assume responsibility for any errors or omissions or for any results obtained from the use of this report, including any action taken with respect to securities referred to in this report. Our employees may from time to time acquire, hold or sell a position in securities mentioned herein. We may from time to time perform services for any company mentioned in this report. This report is not a prospectus or representation intended for use in the purchase or sale of any securities mentioned in this report. SI research is available by subscription and by single copy upon request to the publisher. Strategic Insight (SI) 805 Third Avenue, 21st Floor New York, NY 10022 USA Copyright 2017. Strategic Insight. All rights reserved. 2

About This Report his Strategic Insight (SI) Research report, Asset Management Industry Market Sizing: T 2017 2022, provides a comprehensive perspective on the size and growth of the fund market in the U.S. and internationally. The report combines Strategic Insight s best thinking on market dynamics with its proprietary model to forecast growth. This is the only industry research that provides five-year projections of fund assets and flows at the asset class level. The report offers insight on formative trends that will impact various segments of the industry, including analysis of the retirement market, the broker-dealer landscape, and global wealth management developments. It is based on a foundation of historical data from Simfund and third party sources, including: company filings, Discovery Data, Federal Reserve Board (FRB), Internal Revenue Service (IRS) Statistics of Income Division, Investment Company Institute (ICI), Money Management Institute (MMI), Morningstar, National Association of Government Defined Contribution Administrators, U.S. Department of Labor (DOL), Zephyr Associates, and Access Data, a Broadridge Company. About the Author Jeff Strange serves as a Managing Director of U.S. Research at SI, where he covers asset management and distribution trends. In his role, he helps to lead SI s research and advisory services focused on the U.S. fund industry, with specialized coverage of the subadvisory market. Prior to joining SI, he was the Director of Research at DST kasina and was responsible for setting research direction and managing the research team. For nearly seven years, Jeff focused on managed accounts research, including extensive research on advisory platform design, at Cerulli Associates. He has also worked at Cole Real Estate, State Street Research, and FleetBoston Financial. Jeff earned a BS from Georgetown University and is a CAIA charterholder. Report Author: Jeffrey Strange Contributions by Dennis Bowden, Matt Cirillo, Paul Curley, Anthony Disanzo, Alan Hess, Julie Martin Asset Management Industry Market Sizing: 2017 2022 3

Table of Contents Contents Executive Summary 8 Methodology 11 Channel Overview 11 2017 Methodology Enhancement 11 Sales and Asset Estimates and Projections 11 Firm Rankings 12 Section 1: 2016 Investment Year in Review 13 Analysis of External Fund Distribution Costs U.S. Key Takeaways 13 Market Summary 13 Review of Assets and Flows 13 Conclusion 16 Section 2: The Household Balance Sheet and Forces Shaping the Retail Market 17 Key Takeaways 17 U.S. Household Balance Sheet 17 Forces Shaping the Retail Market 19 Demographics 19 Technology 22 Regulation 23 Lower Market Returns 23 Conclusion 23 Section 3: Projections by Asset Class 24 Key Takeaways 24 Projections Overview 24 Capital Markets Returns Assumptions 25 Equity and Multi-asset Fund Projections 25 Domestic Equity 27 International/Global Equity 28 Multi-Asset and Liquid Alternatives 30 Commodities 32 Bond Fund Projections 33 Corporate Bond 33 International/Global Bond 35 Government Bond 35 Tax-free Bond 36 Conclusion 36 4

TOC Contents (continued) Section 4: Retail Investment Market Product Projections, 2017 2022 37 Key Takeaways 37 Retail Products by Segment 37 Mutual Funds and ETFs 39 Separately Managed Accounts (SMA) 40 Variable Annuities 41 529 College Savings Plans 41 Closed-end Funds 42 Conclusion 42 Section 5: Distribution Channels 43 Key Takeaways 43 U.S. Subadvisory Market 45 Section 6: The Intermediary Channel Assets, Sales and Adviser Counts 47 Key Takeaways 47 Projected Growth by Intermediary Channel 48 Adviser Headcount 49 Wirehouse Channel 49 Regional Broker-Dealer Channel 51 Independent Broker-Dealer Channel 53 Bank Broker-Dealer Channel 54 Insurance Broker-Dealer Channel 55 Independent RIA Channel 56 Section 7: Retirement Markets 57 Asset Management Industry Market Sizing: 2017 2022 Key Takeaways 57 Defined Contribution Market Overview 57 Target-date funds 59 Conclusion 60 Section 8: Global Asset Management 61 Key Takeaways 61 Global Snapshot 61 Dominant Global Themes and Opportunities 65 Global ETFs, Index and Active Funds Trends 65 Socially Responsible Investing 68 Consequences of Fees Unbundling under MiFID II 70 Global Growth Outlook 72 5

Table of Contents Directory of Exhibits Exhibit 1-1 Summary of Growth and Projections by Asset Class... 8 Exhibit 1-2 Summary of Mutual Fund Growth and Projections for Major Intermediary Channels... 9 Exhibit 1-3 Market Performance as Measured by Leading Indexes, 2011 YTD Sept 2017... 13 Exhibit 1-4 Mutual Funds and ETFs: 5-Year Summary by Asset Class, 2011 2016... 14 Exhibit 1-5 Mutual Funds and ETFs: Net Flows by Asset Class, 2011 3Q 2017... 14 Exhibit 1-6 Mutual Funds and ETFs: Asset and Net Flows by Product and Asset Class, 2013 3Q 2017... 15 Exhibit 2-7 The U.S. Household Balance Sheet Key Components... 18 Exhibit 2-8 Forces Shaping the Market... 19 Exhibit 2-9 Historical Student Loan Debt and Average Increase in Debt ($ billions), 2003 2016...20 Analysis of External Fund Distribution Costs U.S. Exhibit 2-10 Evolution of Household Lifecycle: Debt for Life, Wealth Accumulation Delayed, Later and Longer Payout Phase...21 Exhibit 2-11 U.S. Personal Savings Rate as a Percent of Disposable Annual Income, 1959 2016...21 Exhibit 2-12 Exhibit 2-13 The Transition of Focus and Influence has Moved Up the Value Chain, Landing on the Consumer and their Objectives in the Digital Age...22 Annual Total Investment Advisory Solutions Assets and UMA Programs as a Percentage of Total Assets, 2011 2Q 2017... 22 Exhibit 2-14 Median Pre-Tax Operating Margin for Publicly Traded Asset Managers, 1997 2016...23 Exhibit 3-15 Exhibit 3-16 Summary of Projected Growth Rates for Mutual Funds and ETFs...24 Total Net New Flows for Mutual Funds and ETFs, 2011 2022P...25 Exhibit 3-17 Investment Markets, Fund Average Annual Return Assumptions, 2017 2022...25 Exhibit 3-18 Equity/Multi-Asset Mutual Funds and ETFs: Asset Growth, 2011 2016...26 Exhibit 3-19 Domestic Equity: Asset and Net Flows Projections, 3Q 17 2022P... 27 Exhibit 3-20 Exhibit 3-21 International/Global Equity: Asset and Net Flows Projections, 3Q 17 2022P...28 Annual Net New Flows in Intermediary Channels to U.S. Equity and International Equity Morningstar Categories Compared to Index Returns, 2013 YTD 3Q 17...28 Exhibit 3-22 Exhibit 3-23 Exhibit 3-24 Net New Flows in Intermediary Channels to Four and Five Star Funds in U.S. Equity and International Equity Morningstar Categories, 2013 YTD 3Q 17...29 Multi-Asset: Asset and Net Flows Projections, 3Q 17 2022P...30 Liquid Alts: Asset and Net Flows Projections, 3Q 17 2022P...31 Exhibit 3-25 Asset Concentration among Alternative Mutual Funds and Managers, 2008 3Q 17... 32 Exhibit 3-26 Commodities: Asset and Net Flows Projections, 3Q 17 2022P... 32 Exhibit 3-27 Bond Mutual Funds and ETFs: Asset Growth, 2011 2016...33 Exhibit 3-28 Exhibit 3-29 Corporate Bond: Asset and Net Flows Projections, 3Q 17 2022P...34 International/Global Bond: Asset and Net Flows Projections, 3Q 17 2022P...34 Exhibit 3-30 Government Bond: Asset and Net Flows Projections, 3Q 17 2022P... 35 Exhibit 3-31 Tax-Free Bond: Asset and Net Flows Projections, 3Q 17 2022P...36 Exhibit 4-32 Growth of Retail Investment Product Assets, 2011 2016... 37 Exhibit 4-33 Exhibit 4-34 Retail Investment Product Asset, Appreciation, and Net Flows Projections, 2016 2022P...38 Retail Investment Product Asset Market Share, 2011 2022P...39 6

TOC Directory of Exhibits (continued) Exhibit 4-35 Projected Allocation of Annual Net Flows Between Mutual Funds and ETFs, 2017P 2022P...39 Exhibit 4-36 Estimate of Percentage of SMA Assets by Asset Class, 2016...40 Exhibit 4-37 Exhibit 5-38 Exhibit 5-39 Variable Annuity Net Flows by Equity and Bond Funds, 2011 YTD 3Q 17...41 Mutual Funds: Projected Sales, Net Flows and Asset Growth by Broad Distribution Channel, 2016 2022P...44 ETFs: Projected Net Flows and Asset Growth by Broad Distribution Channel, 2016 2022P...45 Exhibit 5-40 Mutual Fund and Variable Fund Mandate Changes, 2008 YTD 3Q 17...46 Exhibit 5-41 Top Mutual Fund and Variable Annuity Sponsors by Subadvised Assets, 3Q 17...46 Exhibit 6-42 Fee-Based Advisory Sales as a Percentage of Total Adviser-Sold Channel Sales, 2009 2016... 47 Exhibit 6-43 Projected Mutual Fund Sales and Asset Growth by Intermediary Channel, 2016 2022P...48 Exhibit 6-44 Actual and Projected Retail Financial Advisor Head Counts, Q2 2017 2022P...49 Exhibit 6-45 Estimated Annual Net Flow Rates By Product for Wirehouse Channel, 2014 2016...50 Exhibit 6-46 Wirehouse Channel Advisors by Broker-Dealer, Q2 2017...50 Exhibit 6-47 25 Largest Regional Broker-Dealers by Number of Advisors... 52 Exhibit 6-48 25 Largest Independent Broker-Dealers by Number of Advisors...53 Exhibit 6-49 25 Largest Bank Broker-Dealers by Number of Advisors...54 Exhibit 6-50 25 Insurance Bank Broker-Dealers by Number of Advisors... 55 Exhibit 6-51 25 Largest Independent RIA Firms by June 2017 Total Assets...56 Exhibit 7-52 5-Year CAGR for U.S. Retirement Market by Segment, 2011 2016... 57 Exhibit 7-53 Growth of Defined Contribution Plan Assets, 2007 2017P... 57 Exhibit 7-54 Mutual Fund Assets in Defined Contribution Accounts, 2007 2016...58 Exhibit 7-55 Exhibit 7-56 Exhibit 8-57 Historical Target-date Mutual Fund Assets and Net Flows, 2007 2017P...59 Target-date Mutual Fund Assets Forecast...59 Funds in Europe, Cross-Border and Asia: Total Asset Change, Flows and Market Gains, 2010 2016...61 Asset Management Industry Market Sizing: 2017 2022 Exhibit 8-58 Exhibit 8-59 Funds in Europe, Cross-Border and Asia: Annual Assets and Net Flows, 2010 2Q 17...62 Funds in Europe, Cross-Border and Asia by Fund Type: Assets and Net Flows, 2010 Q2 17...62 Exhibit 8-60 Best-Selling Managers Globally, Active Funds Only, YTD 2Q 2017...63 Exhibit 8-61 Largest Managers Globally by Assets, Active Funds Only: 2Q 2017...64 Exhibit 8-62 ETFs and Funds in Europe, Cross-Border and Asia: Asset Change and Net Flows, 2010 2016...65 Exhibit 8-63 Index and Active ETFs and Funds in Europe, Cross-Border and Asia: Annual Net Flows, 2010 2016...65 Exhibit 8-64 Index and Active ETFs and Funds in Europe, Cross-Border and Asia: Annual Assets, 2010 2016...66 Exhibit 8-65 Largest Managers Globally by Assets, Index Funds Only: 2Q 2017... 67 Exhibit 8-66 Net Flows and AUM of ESG Funds in the U.S., local Europe and Cross-border Markets (in $billion)...68 Exhibit 8-67 Largest Managers Globally by Assets, ESG Strategies Only: 2016 2Q 2017...69 Exhibit 8-68 MiFID Timeline for Europe...70 Exhibit 8-69 Global Fund Actual and Projected Assets by Region, 2005 2022P... 72 7

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