PGIM’s Hunt Warns Of “Zombie” Future For Asset Management

PGIM’s Chief Executive Officer David Hunt spoke with Bloomberg Television on Monday and warned that a zombie apocalypse is set to invade the asset-management industry with at least 80% of firms achieving “zombie” status in the 2020s. 

“We have never seen such a disparity between winners and losers,” Hunt said during the interview. “The vast majority of firms, if you’re just doing public equities, you’re just doing fixed income, you’re struggling. You’re in outflows, and we don’t see that changing anytime soon.”

Hunt’s outlook for the industry is rather bleak. He said asset managers have been accustomed to decades of high fees, wide margins, and big salaries. 

Institutional clients are now demanding lower fees and have allocated money to fewer and fewer asset managers in the last decade. This trend alone threatens to leave managers behind who are underperforming and don’t offer products that offer a wide range of investment exposure. 

He said the quick rise of passive investing had crushed portfolio managers of active equities. 

“If you don’t have the performance, you can’t charge the kind of historical fees that you had,” said Hunt, adding that, “If you’re a benchmark-hugging firm, you’re going to be replaced with passive, and so you deserve.”

Here’s Hunt’s view on the three business models that will thrive in the 2020s: indexing funds such as BlackRock Inc., boutique firms with a concentration in private equity, and multi-asset investors with an international reach. 

PGIM is the investment arm of insurer Prudential Financial, has an AUM of approximately $1.3 trillion.  

Hunt and his team focus on public fixed income, real estate debt, and equity/private credit. He expects PGIM to expand more into private equity secondaries and added that his firm wouldn’t be diving into passive products: “We attract really good people, we have a real meritocracy, we support people who have contrarian points of view, sometimes for years, and we encourage people to have non-consensus views,” Hunt said. “We’re oriented toward active outperformance, and we don’t want to dilute that culture.”

Hunt’s warning could signal that a consolidation wave could strike the industry in the early 2020s.