Strong growth and increasing internationalisation in UK asset management industry

The latest annual Asset Management Survey has been published today by the Investment Management Association (IMA), the representative body for the UK asset management industry. It shows:

- UK assets managed by IMA member firms grew by 13% during 2013, reaching £5 trillion.
- Increased spotlight on asset managers following the shift to defined contribution pension schemes, auto-enrolment and greater freedom for investors on how to access their retirement income. This has further emphasised the blurring between retail and institutional.
- Ongoing shift away from dependence on UK investors and an increasing globalisation of the client base.
- Investment fund sales have remained robust, with funds under management at a record £770 billion as at the end of last year. Over 80% of retail fund flows have been directed into lower charging share classes (Chart 22 below from full Survey) since the first stage of the Retail Distribution Review (RDR) took effect in January 2013.

The Survey findings are based on responses from 72 IMA members who collectively manage £4.3 trillion worth of assets in the UK.

Jonathan Lipkin, IMA Director of Public Policy, said:

“Sustained growth in assets under management underlines the increasing importance of the industry, both for individuals seeking to save for the future, and for the wider economy in a period of constrained Government and bank-based finance. We are also seeing the industry continue to move towards solution and outcome-focused products alongside the delivery of specialist investment components.

“In the UK, the landscape for the sector is evolving fast, particularly as a result of recent changes in the retail distribution and pension environments. Auto-enrolment and plans to allow greater freedom to access retirement income have resulted in a particular spotlight on the role of asset managers. There is a recognition within the industry of both greater opportunity and greater responsibility in terms of product design and cost disclosure.”

Industry overview in numbers:

- £5 trillion worth of assets managed by IMA members in the UK as at the end of December 2013
- An estimated 11% (£560 billion) of total assets in the UK industry are managed in Scotland
- £2 trillion of assets managed in the UK on behalf of overseas clients
- £770 billion funds under management in UK authorised funds (OEICs and unit trusts)
- 35% of total European assets under management are managed in the UK (latest figures from 2012), making it the largest asset management centre in Europe and the second largest in the world, after the US.

Pension reforms:

- Greater opportunity and greater responsibility for asset managers with the continuation of auto-enrolment and the shift to defined contribution (DC) pension schemes, as well as the recent pensions reforms in the 2014 Budget allowing investors greater freedom over how they access an income during retirement. These changes place asset managers in the spotlight.
- 36% of all assets managed in the UK are for pension funds, making this the largest client type for asset managers.
- Higher emphasis on design and governance of default schemes, as well as transparency and level of charges. With the introduction of the 0.75% charge cap, there will be pressure on the industry in terms of the fees it sets, but the key to delivery of good outcomes is how default DC schemes are governed.

Broad trends:

- Increasing internationalisation of the sector over the past decade with a significant rise in activity on behalf of overseas clients (up from around a quarter of total UK assets managed by IMA members in 2003 to 40% in 2013); a decrease in the proportion of assets managed for UK headquartered firms from 57% to 45%, and also through erosion of UK equity holdings.
- Emergence of a more independent asset management industry which is no longer primarily owned by banks or insurance companies (see Chart 95 below from full Survey). There is also strong growth in the share of ownership among large diversified financial corporations (rising from 6% in 2003 to 15% in 2013), notably custodian banks.
- Evolution in product sets – products are becoming more diversified (see Chart 49 below from full Survey) with a shift towards client solutions and outcome-focused products, eg. greater use of Liability Driven Investment (LDI) strategies. There is also an increase in the use of ‘alternatives’.
- Evolution in distribution channels – a key driver in changes to the distribution environment is the RDR. As expected, there is a clear movement of retail funds from the highest charging share class to lower charging share classes since the removal of commission payments to advisers was implemented in January 2013.