October 2014

ASSOCIATION COLUMN: The globalisation of UK asset management

Canary WharfIn early September the Investment Management Association (IMA) published the latest edition of its annual survey, entitled Asset management in the UK 2013-2014. This year’s results reinforce previous findings showing the success of the UK as a centre for asset management. The UK is still the largest centre in Europe and maintains its global position of second to the US.  Assets managed in the UK by IMA member firms grew to £5 trillion (€3.9 trillion) during 2013. One of the reasons behind this growth is the trend of the past two decades towards the increasing globalisation and internationalisation of the UK asset management industry.  This globalisation manifests itself in a number of ways. Back in the early 1990s, domestic institutional clients, such as pension funds and insurers, would have been the heart and soul of the UK’s investor base. Only around 10% of clients would have been based abroad. But today, two fifths of assets managed in the UK are for overseas clients, over half of whom are outside Europe. And when we look at the split by location of asset management company headquarters, more than half of assets are managed by asset managers with a headquarters abroad, most notably in North America. CHANGING NATURE
As well as a client base that has expanded to embrace those from overseas, asset managers have been increasingly investing in overseas assets. This is especially evident in the move out of UK into overseas equities. Overall, UK equities have dropped from 59% of all equities held to 31% in the last eight years. The decrease in ownership of the UK equity market by pension funds and insurers in the UK is well-documented. Defined benefit schemes have drastically reduced their overall allocation to equities as part of their de-risking strategies and, where they still hold equities at all, they are favouring global allocations.  The changing nature of the industry provides an opportunity for the UK asset management industry to play an even more vital role in the coming years.  Around 32,000 people work directly in asset management in the UK at the moment (with many thousands more employed indirectly) and asset managers are becoming increasingly important to the UK economy as contributors to the nation’s earnings from selling services abroad.  There is a possibility for UK asset managers to benefit from even more overseas investment in the coming years, in particular investment from emerging economies. But for this is to happen, the UK will need to provide a regulatory and tax regime that can compete globally. The IMA is working closely with the government on its UK investment management strategy to help realise that eventuality. This year’s survey also considers how asset managers are playing a different role, particularly in the fast-evolving pensions market and the shift from defined benefit to defined contribution, and reflects on the challenges the industry faces from regulatory and political headwinds. Ruth Meade is senior research analyst at the Investment Management Association ©2014 funds europe

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