Among the themes that emerged from the IMA’s annual asset management survey was the changing structure of the industry.
Asset management originated as the investment arm of insurance companies and the retail and investment banks but, for the first time, firms owned by them account for less than 50 per cent of UK-managed assets and it is increasingly characterised by independent firms.
Asset managers, as well as being less likely to be owned by product distributors, are also less likely to be dealing directly with retail investors. Fund management firms are increasingly more like wholesalers, with distribution to the end client being via advisers and platforms.
There is another thread emerging, where investment managers see themselves as providers of solutions. In the institutional market, we are seeing the growth of liability-driven investment for defined-benefit clients. Target-date funds are increasingly on offer in the defined-contribution market or as strategies for drawdown. Once the age 75 rule for annuity purchase is abolished, we can expect the market in this area to develop further. An increasing number of firms are looking at provision of investment solutions – products that seek to meet specific liabilities or savings needs.
The shape of institutional portfolios has changed significantly over the past 10 years, with UK equities and equities in general making up a smaller proportion. Ten years ago, over 70 per cent of UK pension funds comprised equities, with two-thirds of this being in UK equities – 48 per cent of total assets. UK equities now comprise half this level – 22 per cent of total assets – with equities as a whole comprising just over half of total assets. Portfolios include a higher proportion of non-equity assets and a higher proportion of global assets.
While the ownership of UK equities by institutional investors has been declining, the share owned by retail investors has increased by half, from around 7 per cent 10 years ago to 10 per cent today. The UK funds sector as a whole has grown steadily from a specialist niche into a mainstream part of household savings. In the 1980s, UK funds comprised less than 5 per cent of GDP but today it is getting on for a third of GDP.
The UK asset management is increasingly global in all sorts of ways. The UK asset management industry manages 31 per cent of the £3.4trn of assets on behalf of overseas clients. It increasingly manages more global assets. It is also increasingly globally owned. This year, the proportion of assets managed by firms whose ultimate ownership is outside the UK, passed 50 per cent for the first time.
The UK asset management industry is the biggest in Europe, managing around 30 per cent of total assets and nearly half of all equities.
The survey uncovered some concerns over the future of the industry in the UK, with 22 out of the 24 firms interviewed concerned about the lack of certainty on taxation and immigration policy. There is the potential for the coalition Government to allay these. However, the UK has the potential to remain a world-leading asset management centre.
Ginny Broad is head of communications at the Investment Management Association