While the majority of total assets (78.4%) are still actively managed, its share of total assets declined from 79.7% at the end of 2016, the research revealed.
Meanwhile, the proportion of passively managed assets has grown from 16.5% to 21.6% over the past five years alone.
Luba Nikulina, global head of manager research at Willis Towers Watson, said: “We expect that this trend will continue to put downward pressure on traditional fee structures, particularly among active managers seeking to remain competitive and to maximise value to investors.”
AUM of the world’s largest 500 managers grew to $81.2trn in 2016, smashing the $80trn mark for the first time and representing a rise of 5.8% on the previous year.
For North American managers, AUM increased by 7.7% over the period and now stands at $47.4trn, while European managers saw a 2.8% rise to $25.8trn.
However, UK-based firms saw AUM decline by 4.5% to $6.3trn in 2016, for the second consecutive year.
Nikulina added: “It is encouraging to see a return to growth in total global assets, suggesting that managers are finding success in attracting investors towards innovative solutions to achieve superior risk-adjusted returns.”
As with previous years, equity (44.3%) and fixed income assets (34.4%) continued to dominate, with a 78.7% share of total assets, experiencing an increase of 3% combined during 2016. Continuing from the strong growth they experienced in 2015, assets in alternatives saw a 5.1% increase by the end of 2016, closely followed by equities at 4.1%.
Nikulina said: “Alternatives continue to grow in popularity, with investors remaining under pressure to find effective means of diversification in an environment of lower expected returns from traditional asset classes. These strategies often come with greater complexity and require superior risk management.
“Our research has also highlighted awareness in sustainable investing, with 78% of the firms surveyed acknowledging a growing interest from their clients for these sorts of strategies as they continue to look for ways to add value for clients.”
