CANADA ASSET MANAGEMENT MARKET - Growth, Trends, COVID-19 Impact, and Forecasts (2020 - 2025)
The Canadian asset management market registered a CAGR of 7.54% during the period, 2012 – 2017.
- The Canadian industry is expected to grow at a faster rate to CAD 400 billion by 2024. The Canadian ETF market grew to CAD 156 billion (AUM), with inflows of CAD 20 billion. The Canadian equity ETF with the most inflows in 2018 was BMO S&P/TSX Capped Composite Index ETF (ticker: ZCN), with more than CAD 1 billion in net flows.
- In 2018, PE managers remained active, closing 324 PE transactions worth CAD 52.0 billion. With fewer than 500 VC financings closed, VC deal value still managed a record high of CAD 3.8 billion. PE sellers completed CAD 35.2 billion worth of exits in 2018. Fundraising lagged for both asset classes, with only two PE vehicles and three VC vehicles closing, indicating a potential resetting of the fundraising cycle.
- The factors that drive the growth of the market are rising interest rates and platformification. A steady influx of new competitors and investing alternatives are driving Canadian asset managers to invest in new innovative technologies for enhancing operations through technology and to improve the client experience. Reducing financial stress is a growing focus for players across the asset management industry in Canada.
Key Market Trends
The Canadian Industry to See Even Faster Growth than the Global ETF Industry
The global ETF industry is projected to double to more than USD10 trillion by 2024. The Canadian industry is expected to grow at a faster rate to CAD 400 billion by 2024. The Canadian ETF market grew to CAD 156 billion (AUM), with inflows of CAD 20 billion. The Canadian equity ETF with the most inflows in 2018 was BMO S&P/TSX Capped Composite Index ETF (ticker: ZCN), with more than CAD 1 billion in net flows.
Investors continued to show support to broad Canadian equity exposure, especially to financials and energy, as Canada has underperformed in the leading global markets. Investors consider ETFs as an effective, transparent, and low-cost asset allocation tool. The diversification and trading efficiency that ETFs offer has become more important than ever, as volatility has returned to the global markets. The value of positioning with traditional passive ETFs and new active ETFs was evident during the market corrections in the fourth quarter.
BMO Global Asset Management offers 77 mandates and has a market share of 31% in Canada. There has been a trend toward short-dated fixed income ETFs. Tactical trading and repositioning within fixed income using ETFs have become popular strategies. Although ETFs are now a mainstream option, they still only represent 10% of the assets under management of the mutual fund industry in Canada.
Outlook for the Canada Economy and Investment Management Industry
Both the Canada economy and the Canada stock market have not been performing well. As interest rates in 2018 were increasing, the quantum of increase in interest rates has been effecting the performance of the Canada economy and the stock markets. Sustained higher interest rates could hamper asset price growth, hence hampering the returns provided by financial asset managers. Investment managers have already been struggling in a period of low expense ratios and higher operating costs, and hence consolidation is expected in the market. However, an improved economy may lead to more disposable income and better profits for companies. This, in turn, may help investment managers increase fees and income. With increasing household interest rates, there is a possibility of shift of smaller consumers to high return financial product at low-cost margin to meet the financial requirements. However, currently a wave of consolidation is expected in the market, as the market is highly competitive due to disruptions caused by technological changes and dynamic consumer/retail investor behavior.
The Canadian asset management market is highly competitive, with the presence of major international players. The market studied presents opportunities for growth during the forecast period, which is expected to further drive the market competition. With multiple domestic players holding significant shares, the market studied is competitive.
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