The Investment Association’s target to almost double UK assets under management to £15trn over the next decade is significantly higher than growth expectations in the industry, as highlighted in a survey of 2,000 buyside professionals.
According to that report published by Bloomberg and law firm Simmons & Simmons, the industry expects a 22% increase in UK AUM by 2025.
While the IA target and the buyside expectations, which were both published on Wednesday, are based on different time horizons, the former implies an annual compound growth rate of 6.9% while the latter would require a more modest annual asset growth of 3.4%, a figure in line with anticipated global GDP growth.
Brexit Britain vs the rest of the world
The Investment Association target counts on the UK remaining a “go-to” hub for international business and talent at a time when Brexit creates borders to trade and threatens to slash immigration, particularly from the European Union, which is currently a source of 10% of asset management talent. Innovation, in terms of fintech and product development, plus resilience, including cyber security, were also cited by the IA as areas of focus to keep the UK funds industry ahead of its global peers.
In the Bloomberg/Simmons & Simmons report, UK AUM expectations were slightly above the global average of 21% and almost kept pace with the Asia-Pacific region. Europe ex-UK and US asset growth expectations lagged the global average.
However, in the global results, Brexit was listed as the largest threat to asset growth alongside trade wars and changing savings habits. On the latter point, millennials lag baby boomers for saving rates, which the report attributed to higher living costs and job churn.
Global respondents cited the UK as the geographic region in which they were most likely to reduce allocations, with 16% stating they anticipated doing so in the period to 2025, followed by Russia, where 6% of respondents expected to reduce their allocation. China and global emerging markets were the geographic regions likely to see the greatest inflows of capital from fund managers.
Fee income
The industry expects fees to come down 11% by 2025 meaning fee income would lag asset growth with expectations for an 8% rise over the period, according to the Bloomberg/Simmons & Simmons report.
Almost a fifth anticipate compliance will be the largest cost increase, while 15.3% expect costs to be cut in portfolio management functions and 19.4% expect cost cutting to take place in dealing and execution. The report attributed these to the rise of robo-advice and more automated trading and dealing infrastructure.
Fixed income out, ESG in
Asset managers anticipated investors moving from interest rate sensitive products, like bonds, to equities and infrastructure in anticipation of tighter monetary policy.
A fifth of traditional fund management respondents expect assets to move out of high-yield corporate bonds.
In the alternative fund management space, CLOs, loans and private real estate were highlighted by 12% of respondents as asset classes likely to lose money, while ESG/impact was considered the area with the most opportunity with 15% of respondents citing it as the largest area of growth.
