Global Asset Management Trends and The Flow of Capital Nick Anderson, Head of BlackRock’s Middle East and Africa Business September 2013 For professional clients / qualified investors only Global asset management trends Global AUM has remained flat over the past five years Global growth rates likely to remain slow ETFs, SWFs and DC are growth channels Investor preferences are rapidly shifting… Hugely competitive market place. Winner takes (nearly) all Other major trends reshaping the asset management industry Global AUM has remained flat over the past five years Global AUM 2012 stood at $62 Trillion, just above the pre-crisis level in ‘07 Overall the total AUM been relatively flat (average <1% for the past 5 years) This is largely due to: suppressed economic growth, de-leveraging, de-risking, declining DB pensions, lower income returns in portfolios Revenues just recovering to pre crisis level Global Asset Management Market 5.7% AUM ($tn) 70 Net Flows (% AUM) 1% 60 50 4.0% 12% 40 30 1.0% 20 1.0% -0.5% 10 0.1% -0.2% 0 02 07 08 09 10 11 12 06 07 08 09 10 11 12 Source: BCG Global Asset Management Market Sizing Database 2012. Note: AUM total represent assets sourced from each region across 42 markets, that are professionally managed for a fee, including captive assets of insurance groups and pension funds delegated to asset managers Global growth rates likely to remain slow Organic growth in developed markets is expected to rise from 1% to 1-2% over the next few years The smaller, less mature markets are set to continue their faster growth rates, at +7% Yet size still matters; 1% gain in market share in developed markets equates to $590bn Global Asset Management Market by Region North America $27.7tn (49%) AUM% Organic Growth Rate 2007-2012 2012-2014 89% Developed Countries +1% +1-2% 11% Emerging Countries +12% +7% 100% Global AUM +1.2% +1.5-2% Asia (ex Japan) $3.3tn (6%) Europe $17.4tn (30%) MEA $2tn (2%) Japan & Aus. $5.8tn (10%) Latin America $1.5tn (3%) Source: BCG Global Asset Management Market Sizing Database 2012. Note: AUM total represent assets sourced from each region across 42 markets, that are professionally managed for a fee, including captive assets of insurance groups and pension funds delegated to asset managers. ETFs, SWFs and DC are growth channels ETFs are the main high growth channel at 12+%, SWFs at 6-8%, all other channels <4% Global AUM organic growth of 1.5% to 2.0% from ‘12-’14 Mutual funds and pensions account for 70% of global AUM, but continuing subdued growth ETFs are expected to continue growing at a double digit pace (12-14%) over the next 3-5 years driven by both continued adoption and the switch to passive SWFs will benefit from continued demand for resources Global Asset Management Market by Channel Source: McKinsey Global Asset Management Database for institutions. Strategic Insight for mutual funds and ETPs. Note: (1) 2007-2011 for institutions and 2007-1H 2012 for mutual funds and ETPs; (2) includes corporates, government entities and non-profit. Investor preferences are rapidly shifting… Low yields, volatile equities are driving investors away from traditional asset allocation model in favour of a more specialized approach including; low vol, alts and outcome-oriented products Significant secular product shift from core equities, core fixed income and sectors to: Product Type Cumulative Flow $bn (09’12’) Avg Organic Growth (09’-12’) Active specialities ( EM, Global, HY, Distressed, CLO, Bank Loans $881 3% Flexible, Multi Asset and Alts (outcome orientated) $733 4% $1,051 14% Passive/ ETFs Global Asset Management Market by Strategy Active core includes active-domestic, large-cap-equity, active-government bond, money-market, and traditional balanced; active specialities includes equity specialties (foreign, global, EM, and small- and mid-cap sectors) and fixed-income specialties (credit, EM global, HY, and convertibles); alternatives includes structured products, hedge funds, private equity, real estate, infrastructure, LDI and commodity; solutions includes absolute-return, target-date, global-asset-allocation, flexible, income, and volatility funds 6 Hugely competitive market place. Winner takes (nearly) all: The top-10 managers have captured ~70% or more of the flows in most product segments in institutional & retail markets These managers have identified the important trends, innovated successful new products, have consistent product performance and close coordination between manufacturing and distribution Passive Unconstrained Outcome Orientated Institutional dogfight for market share Top quartile performance Consistency relative to peers 7 Other major trends reshaping the asset management industry: Fee compression; move to passive and alts Declining correlation of individual stocks and lower volatility increase potential for alpha generation Growth of barbell strategies Web technology for retail investors Merges and acquisitions 8 9 Important notes In the US this material is for institutional investors only. In the EU issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. In Hong Kong, the information provided is issued by BlackRock (Hong Kong) Limited and is only for distribution to "professional investors" (as defined in the Securities and Futures Ordinances (Cap. 571 of the laws of Hong Kong)) and should not be relied upon by any other persons. In Singapore, this is issued by BlackRock (Singapore) Limited (company registration number: 200010143N) for institutional investors only. For distribution in EMEA and Korea for Professional Investors only (or “professional clients”, as such term may apply in relevant jurisdictions). For distribution in Taiwan for Professional Investors only. Independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28/F, No. 95, Tun Hwa South Road, Section 2, Taipei 106, Taiwan. Tel: (02)23261624. In Japan, not for use with individual investors. In Canada, this material is intended for permitted clients only. This material is being distributed/issued in Australia and New Zealand by BlackRock Financial Management, Inc. ("BFM"), which is a United States domiciled entity and is exempted under ASIC CO 03/1100 from the requirement to hold an Australian Financial Services License and is regulated by the Securities and Exchange Commission under US laws which differ from Australian laws. In Australia this document is only distributed to "wholesale" and "professional" investors within the meaning of the Corporations Act 2001. In New Zealand, this document is not to be distributed to retail clients. BFM believes that the information in this document is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BFM, its officers, employees or agents. In Latin America, for Institutional and Professional Investors only. This material is solely for educational purposes and does not constitute investment advice, or an offer or a solicitation to sell or a solicitation of an offer to buy any shares of any funds (nor shall any such shares be offered or sold to any person) in any jurisdiction within Latin America in which such an offer, solicitation, purchase or sale would be unlawful under the securities laws of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico, Peru or any other securities regulator in any Latin American country, and thus, might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America. This document contains general information only and is not intended to be relied upon as a forecast, research, investment advice, or a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information does not take into account your financial circumstances. An assessment should be made as to whether the information is appropriate for you having regard to your objectives, financial situation and needs. The opinions expressed are as of September and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader. Past performance is no guarantee of future results. BlackRock® is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners. © 2013 BlackRock, Inc. All rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are registered trademarks of BlackRock, Inc. or its subsidiaries. All other trademarks are the property of their respective owners. Please be advised that Blackrock Investment Management (UK) Limited is an authorised financial services provider with the South African Financial Services Board, FSP No. 43288.