Dubai: Wealth managers are often seen as ‘high-end’ financial service providers as they manage an exceptionally high level of investment assets. But it’s well beyond just that. The wealth management industry has grown so much that it now holds sway over even the direction of global markets.
Dating back close to a century, the concept of ‘wealth management’ was reportedly brought on by US investment banking majors Goldman Sachs or Morgan Stanley, while defining the role of financial intermediaries who invest on behalf of beneficiaries such as pension holders or wealthy individuals.
Over time, providing wealth management services and expertise became popular with banks and financial services. However, with the global financial crisis of 2009, it became evident that individuals and corporates needed far more education and awareness about managing their wealth.
Why do wealth managers matter?
“Today, the largest corporations are chiefly owned by the world’s top 500 wealth managers, as opposed to up until a few decades ago, when most of the conglomerates were owned by individual shareholders, insurers and pension funds,” explained Zubair Shakeel, a UAE-based asset manager.
Statistics reveal that this change in ownership when it comes to world’s wealth and assets has been aided by a vast concentration of assets and power within the asset management industry itself.
US-based BlackRock, the largest manager worldwide, controls more than $10 (Dh36.7) trillion in assets, while its closest competitor, US-based Vanguard, controls $8 (Dh30) trillion, according to the Thinking Ahead Institute, a global research group comprising of mostly asset owners and managers.
To put their managed wealth into perspective, BlackRock and Vanguard can together own every company listed on the London Stock Exchange, which has nearly 2,000 company listings, four times over.
From a wider standpoint, the top 500 asset managers reached a new $131 (Dh481) trillion record and the top 20 asset managers in the world now oversee assets worth over $59 (Dh 216) trillion, according to the Thinking Ahead Institute. In comparison, the world’s wealth stands at $462 trillion.
When compared to key asset management players elsewhere in the world, US investment managers account for 15 out of the 20 largest firms and around 82 per cent of these assets.
Influence on global markets
But why do these top asset managers matter in this world economy? “With such ownership of wealth or control of investment assets, comes voting rights to shape multinational corporations’ actions on significant global movements,” added Shakeel.
“From snapping up vast real estate portfolios to administering massive corporate bond purchases and advising on the finance legislation, the influence of top asset managers has grown enormously.” According to a research conducted by UK-based Oxford University and investment banking major Deutsche Bank, the role of investment managers on the stability of markets is still significant.
For instance, they invest in stocks that are relatively inefficiently priced, and the price efficiency of these stocks improves after wealth funds increase their holdings. The ownership by wealthy funds contributes more to efficient pricing than ownership by other types of institutional investors.
Role of investment managers
“There are at least 20,000 wealth managers spread across 95 countries, and their control of billions in private capital flows plays a major role in the concentration of wealth worldwide,” agreed Brody Dunn, an investment manager at a UAE-based asset advisory.
“They advise private individuals on how to invest their portfolios and plan their finances to meet their financial goals, and they typically offer a range of services, including portfolio management, estate and retirement planning, among other services.”
The only goal for wealth management is to provide strong returns for the investor’s portfolio of assets as a whole. On the other hand, a hedge fund, while similar, is a collection of investment oversight that seeks greater returns through very risky types of investments.
A minimum is essentially the range where it makes sense to consider the services of a wealth management firm, and below that it might be hard to justify the expense of this type of service. Regardless, having a wealth manager isn’t the only way to gain exposure to their experience.
You can instead put your money in fundamentally strong assets that belong to a fund run by such a wealth manager. You’ll not only benefit from the professional investment and risk management skills that their funds are known to offer, a key reward is that the funds are multi-tier diversified.
When you invest in a wealth manager-run fund, your and other investors' money is pooled together. On your behalf, fund managers then decides which investments to buy, hold and when to sell them. You then get exposure to all the investments in the fund and any income they generate. All funds are made up of a mix of investments – this is what diversifies or spreads your risk.
Bottom-line for an investor?
“For an investor, it’s all about the fund’s diversification and reputation. These reputed managers invest in various instruments, such as stocks, bonds, collective investment schemes and alternative investments. Each fund has a different investment objective and risk profile,” added Dunn.
“The funds also gain exposure to hedge funds, private equity, real estate sector and related trusts, which albeit are subject to additional risks and volatility. So with an incredibly diversified portfolio, alongside their reputation in responsibly handling the world’s wealth, as an investment, it’s a win.”
In other words, wealth management funds are actually crucial for not just protecting but growing the assets you've accumulated. And in doing so, an added bonus is knowing how much your investment, or the manager controlling it, holds sway over the global market and its issues.
Moreover, with the global wealth management market size predicted to garner a revenue of $850.90 billion (Dh3.1 trillion) in the 2021-2028 timeframe, growing from $498.70 billion (Dh1.8 trillion) in 2020, matter experts evaluate how their influence on world markets will only increase.