The Industry in Summary
Asset Management in the UK 2013-2014
- As at December 2013, IMA members managed a total of £5.0 trillion assets in the UK, an increase of 13% year-on-year, with total assets in the wider industry estimated to be £6.0 trillion.
- UK authorised funds, which are the main delivery vehicle within the UK retail market, grew by 16% reaching £770 billion at the end of 2013.
- The UK is the second largest asset management centre in the world after the US. Within Europe, the UK retains its position as the largest asset management centre in the continent with a market share of 35% of total European assets at the end of 2012 (2011: 36%).
- Pension funds remain the largest institutional client type (36%) followed by insurance companies (20%).
- The overseas client base grew in absolute terms to £2.0 trillion but in relative terms remains at 40% of total UK assets under management in 2013.
- Equities rose to 46% of total assets under management (2012: 42%), whilst fixed income fell to 34% (2012: 37%). Growing use of alternative instruments and asset classes has seen the ‘other’ category increase in recent years to 11%.
- The proportion of total UK-managed assets run on a passive basis remained almost unchanged year-on-year at 22%.
- The balance between segregated and pooled assets remained relatively stable. Segregated mandates increased to 56% compared to 44% pooled. (2012: 52% vs 48%).
- The UK industry has become much more international over the past two decades. There is a growing proportion of overseas headquartered firms and parent groups; overseas firms grew from 43% in 2003 to 55% by 2013.
- Investment on behalf of clients has become far more international, with the erosion of home bias continuing.
- The UK industry has moved through a phase of intense specialisation (mid-1990s to mid-2000s) towards a greater focus on meeting specific client outcomes and/or solutions. This has been seen across UK markets: DB, DC and retail.
- Within the retail market, the RDR has been a key recent regulatory change. The adoption of lower charging share classes has gathered pace since its introduction.
- Intermediation patterns have also been evolving in the institutional market, where the divisions between the roles of manager and consultant are becoming increasingly blurred.
- Regulation is likely to remain more intrusive and costs of compliance elevated. Pressure is building in a number of areas, from transparency through to potential systemic significance. The industry itself is also taking initiatives to improve operating practices and disclosure.
UK Institutional Client Market
- IMA members managed a total of £2.6 trillion in UK institutional client assets around the world at December 2013, an increase of 7% from 2012.
- £1.4 trillion (51%) is managed for the pensions market. Corporate pension funds remained the largest pension fund category, accounting for £1.1 trillion of total UK institutional assets.
- The shift from defined benefit to defined contribution pension schemes continued during 2013. While it is not yet clear precisely how both products and individual behaviour will evolve in response to the 2014 Budget announcement on retirement options, the asset management industry expects to play a far greater role in providing retirement income.
- IMA members managed £1.9 trillion of assets for third party institutional clients, accounting for the large majority of the third party market. Pension fund mandates predominate, with two thirds of the total.
- Specialist equity mandates accounted for 47% of the total in the third party institutional market, some way ahead of fixed income with 35% market share.
- Segregated mandates represented over one-half (56%) of third party institutional mandates.
- There was an increasing shift towards globalisation of investment horizons with UK equity mandates representing only 26% of the total third party equity mandates in comparison to global equity mandates accounting for 39% at the end of 2013.
UK Fund Market
- Total UK-domiciled investment funds in 2013 stood at £770 billion, up by 16% from a year earlier.
- Retail funds under management made up the majority of the industry funds under management and accounted for 67% of the total in 2013.
- Net retail sales were £20 billion in 2013, significantly higher than the previous year (£14 billion).
- Equity funds increased their share of total funds under management to 55%, fixed income fell to 15% of the total. Mixed asset funds stayed at a similar level to last year (14%) while property funds increased to 2.2%. Targeted absolute return funds rose to 4.4% in 2013.
- The hunt for yield continued, with a shift towards equity income as opposed to fixed income funds.
- Economic sentiment strengthened as 2013 progressed and so too did equity fund sales. Net retail sales of equity funds grew in the second half of 2013 accounting for over £7 billion of the £11 billion total for 2013.
- Net retail sales of fixed income funds dropped significantly in 2013 and the year actually finished with a small net outflow of £20 million.
- Net retail sales of tracker funds were very robust, at £3.2 billion in 2013, compared to £1.8 billion in 2012. This annual figure is the highest since records began in 1992.
- The fund industry remains a highly competitive environment, with the top ten firms representing approximately 46% of total UK authorised funds under management.
- Despite strong growth in the UK market, it continues to be the fifth largest fund domicile in Europe, representing 11% of the total European investment fund industry as at the end of 2013.
Operational and Structural Issues
- Average industry net revenue (including all in-house and third party activity) increased to 31 basis points (bps) (from a revised 29bps in 2012). This represents 17% growth year-on-year on the absolute revenue value. As a proportion of assets it remained below the pre-crisis level of 32bps (2007).
- Total operating costs have grown by 14% in absolute terms. As a proportion of average assets this equates to 20bps, up from 19bps in 2012.
- 80% of respondents used performance-based fees (down from 81% in 2012). The majority of respondents (83%) stated that they did not think performance-based fees had increased in prevalence over 2013.
- Total industry headcount increased by 3.4% to an estimated 31,800 indicating steady industry growth in the post-crisis years.
- Contrary to previous years, 2013 saw a fall in the proportion of respondents who outsource some part of their business, to 72%.
- Overall, the industry remains comparatively unconcentrated. The proportion of assets represented by the top five remained at 35% of the total UK asset base whilst the top 10 fell slightly to 50%.