The Investment Management Association (IMA) today launched its eleventh annual Asset Management Survey which includes survey responses from 72 members and the views and thoughts of 27 senior industry figures from 21 IMA member firms gathered through face-to-face interviews.
Figures as at the end of 2012 show assets under management in the UK at record levels, with IMA member firms managing £4.5 trillion.
Senior industry figures highlighted a number of significant priorities for the industry going forward:
• Serving specific client objectives in an environment characterised by challenging regulatory, demographic and market conditions.
• Increased efforts to improve communication with end clients as part of broader measures to help build trust.
• A greater interest and willingness in the industry to provide market-based finance, helping to facilitate the opening of new conduits of capital in areas such as infrastructure.
Meeting evolving client needs
While specialist investment product manufacture will remain an important part of what the industry does, the survey findings confirm a shift towards more outcome-focused products, placing the emphasis on meeting specific client needs and objectives. There is also an ongoing trend towards de-risking, seen in changes to asset allocation. For example, whilst the proportion of investment funds under management represented by equity funds is still over half, there is a marked long-term decline (from 89% of total funds under management in 1993 to 52% in 2012). Investors are diversifying and goals such as the ‘hunt for yield’ and capital protection have been clearly in evidence in recent years.
While the changes may in part reflect the cyclical nature of markets and the economic cycle, those interviewed identified structural factors with potentially permanent implications for the industry.
Jonathan Lipkin, IMA Director of Public Policy, said:
“Firms are telling us something increasingly consistent, which is that they expect no return to the equity culture that characterised the 1990s. The market experience of the past decade, dominated by the dot.com crash and the more recent global financial crisis, is likely to have permanent consequences.
“A range of demographic, regulatory and accounting changes are also driving client needs and expectations. Together, these are pushing the industry towards more diversified asset allocation approaches and a greater focus on meeting specific client objectives.
“For the asset management industry, this will mean different things for different firms. Some will continue to specialise, providing investment components into the market. Others will move in the direction of connecting more directly with client needs, for example through target-date funds or LDI products in the pensions market.”
Building investor trust
Asset managers identified client trust as a key theme for the industry, and interviewees talked about greater efforts being made by firms to communicate with both institutional and retail investors in a simpler and more transparent way, embracing new and innovative communication channels.
Other trust building measures that have been adopted by firms include reviewing the firm’s culture and values, improving internal processes to provide better internal reporting and monitoring of conflicts of interest, and conducting external quality checks to ensure platforms and other service providers are representing their products appropriately and accurately.
Daniel Godfrey, IMA Chief Executive, said:
“Building trust is fundamental for the industry if we are to fulfil our role of helping people build resilience to financial adversity and achieve their financial aspirations.
“It is encouraging to learn that members are investing significant time and resource into their communications and processes to ensure they give the end investor the information they need in a format they can understand.”
Long-term finance
The publication of the Kay Review in July 2012 – focusing on alignment of incentives in UK equity markets to support long-term value creation – and the European Commission’s Green Paper on Long-Term Financing of the European Economy in March 2013 have broadened the debate on long-term finance. Interviewees see three areas in particular:
1. ‘Long-termist’ behaviour, emphasising engagement in corporate governance, stewardship and socially responsible investment.
2. Long-term finance provision, such as direct lending to business, through credit intermediation outside of traditional bank finance channels.
3. Long-term financing projects, most typically through infrastructure or project finance.
The survey found growing interest in the role that market-based finance might play, albeit with a number of observations about the challenges that asset managers would face in entering this space.
Jonathan Lipkin added:
“We’ve seen the debate about long-term finance widen both in Europe and in the UK since we conducted the 2011 survey. Asset managers believe that there will be more market-based finance in the future, and feel more positive and open to the idea of stepping in to fill some of the gaps created by bank and government deleveraging.
“However, a number of concerns were raised including the risk of subordinating clients’ interests to the perceived interests of the wider economy, for example, if the government wanted to drive investment towards specific infrastructure projects. Asset managers therefore voiced the need for commitment from the government and regulator to work together with the industry to ensure that client pools of capital can be connected to those who need capital investment in the most effective way possible.”
Further information about the rest of the survey findings, including chapters on the international dimension of the industry, the UK fund market and operational and structural issues, can be found on the IMA website.