A three-year run of improving business optimism among UK investment managers has ended as volumes failed to expand in the final quarter of 2014 and total costs rose rapidly.
However, according to the latest CBI/PwC Financial Services survey, profitability is expected to improve in the next three months as investment management firms continue to expand their headcount. Income from net interest, investment and trading is expected to remain stable following a flat fourth quarter 2014.
Mark Pugh, PwC's UK asset management leader, says the lack of optimism among investment mangers at the end of last year was probably linked to global volatility in the equity markets and disruptive geopolitical events.
Pugh expects optimism to return to the sector in 2015. "Following a pick-up in the market in 2014, firms will now be focusing on spending with direct interaction with the customer front of mind for investment managers. Return on investment is expected in the coming year," he says.
He adds that acquisition of domestic customers stands out as the key driver for growth in the next year and should cause an increase in mergers and acquisitions (M&A) activity. Mid-size firms are most vulnerable, with big houses looking to consolidate their customer base through acquisitions, says Pugh. This was reflected by a number of acquisitions last year.
Investment managers see a number of factors as increasingly important for their growth strategies in the year ahead, including domestic markets, M&A activity and branding and advertising.
The biggest barrier to expansion cited by investment managers is a lack of talented professionals, compounded by pay regulations and strong markets.
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