The world’s 500 largest asset managers’ assets under management increased by 12.5 per cent to US$128 trillion in 2023, compared to $113.7 trillion at the end of 2022, according to a new report by WTW’s Thinking Ahead Institute.

It noted the annual growth rate represents a significant recovery from the major correction seen in 2022, when the total value of AUM dropped by $18 trillion.

Read: Report finds world’s 300 largest pension funds’ AUM increased 10% in 2023

According to the report, this is the first time passive investment strategies have accounted for more than a third (33.7 per cent) of total AUM.

Allocations to core equity (48.3 per cent) and fixed income (29 per cent) remained the dominant asset classes for institutional investors. The report noted the combined total for equities and fixed income marked a slight decrease (0.2 per cent) compared to the previous year as institutional investors have shown a renewed interest in alternatives like private equity and other illiquid assets.

North American asset managers accounted for nearly two-thirds (60.8 per cent) of total AUM with a total value of $77.8 trillion at the end of 2023. Asset managers located in the U.S. represented 14 of the top 20 managers overall, accounting for 80.3 per cent of assets.

Read: World’s 500 largest asset managers’ AUM down 13.7% in 2022: report

In a press release, Jessica Gao, director at the Thinking Ahead Institute, said asset managers have experienced a year of consolidation and change despite a return to strong market performances.

“Macro factors have played a key part in the story, with notable highs in interest rates during 2023 exerting varied pressure on different asset classes, geographies and investment styles. As this now gradually switches to a rate cutting environment, equity markets are beginning to return positive performance also driven by improving expectations of earnings growth.”

Looking ahead, recent geopolitical events and several major elections have created uncertainties for asset managers, she added.

Read: World’s 100 largest asset owners’ AUM down 9% in 2022: report