Over the last 10 years, the asset management industry has grown at an annual rate of 10%; put another way assets under management in the UK have grown from 144% of total GDP in 1993 to 313% in 2013. As at end December 2013, IMA member firms managed a total of £5 trillion in assets in the UK, up 13% year on year.
There is no doubt that the asset management sector has weathered the global financial crisis better than even the most optimistic fund manager would have imagined in the depths of 2008, but there is a case to argue that not only has it weathered the storm but has come out of it refreshed.
As Jonathan Lipkin, IMA director of public policy points out: “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.”
But, it is not just the size of the sector that has changed, there are a number of other changes that are important to note and likely to continue to have a bearing on how it develops.
The first of these is the increased globalisation seen within the sector. Ten years ago, the sector’s overseas client base accounted for about 25% of total assets managed in the UK, the IMA says, in 2013, this figure was 40%, while importantly over the same period the sector’s contribution to net export earnings rose from £300m per year to £5.3bn.
At a company level, as a proportion of total assets managed in the UK, overseas firms grow from 43% in 2003 to 55% in 2013, the IMA added.
There has also been an increasing blurring of the lines between institutional and retail flows as pension funds shift from defined benefit to defined contribution schemes, auto enrolment into retirement schemes and the greater freedom, announced in this year’s budget, to choose where to invest one’s money after retirement.
As a result of these changes, Lipkin says: “There is a recognition within the industry of greater opportunity and greater responsibility in terms of product design and cost disclosure.”
This is also evident in the noticeable trend toward outcome-based products.
As the IMA points out: “The cycle of ‘specialisation’ that characterised the period between the mid 1990s and mid 2000s has evolved towards a greater focus on delivering specific client objectives, whether in the retail, DB or DC markets. At the same time, a consistent refrain of this report in recent years has been the growing pressure on the industry to change the way in which it operates, communicates and accounts for its products.”
Targeted absolute return funds now represent 4.4% of industry funds under management, having seen their highest annual net retail inflow in 2013 since the sector was launched in 2008, the IMA says, while mixed investment funds continue to be the second best selling product after equity funds.
“While we remain in a low interest rate environment, investor demand for return-based our outcome-oriented products may continue. Renewed vigour in the equity market does not seem to have dampened investor appetite for targeted absolute return funds, which intuitively may appeal to investors in times of market volatility. Flows data from 2013 actually suggest the opposite, with sales of targeted absolute return funds apparently complemented by strong equity markets, rather than these funds being substituted for other products.” it adds.
There is no doubt that the role of asset management has expanded, and there is every reason to expect that to continue as the population continues to age and more of that money is passed to the sector. But, there are also a number of challenges to overcome, including how it deals with the pressure on fees, the increased focus on transparency and the ever increasing inter-linkages with the rest of the global financial markets.
Whether or not we are indeed entering a new age or not remains to be seen, but it is clear that now is not a time to be resting on one's laurels.
