UK investment management resilient in the face of headwinds
Total assets under management by Investment Association (IA) members reached a record high of GBP8.5 trillion at the end of 2019, despite ongoing political instability including the UK’s departure from the EU in January 2020.
This represents a 10 per cent increase on the previous year according to the IA’s Investment Management Survey (IMS) - the annual assessment of the state of the industry in the UK.
IA estimates also suggest that despite the record falls in global markets at the start of the pandemic, by mid-2020 total assets under management had almost returned to pre-pandemic levels.
The continued growth in assets has cemented the UK’s global position as the second largest investment management centre in the world after the US, and by far the largest investment management centre in Europe with higher total assets under management than the next top three European centres combined (France, Germany, Switzerland).
The industry has faced significant operational and economic challenges in 2020 as a result of the Covid-19 pandemic. This year’s report identifies a number of lessons that have emerged as a result of firms’ experiences through 2020. These are wide-ranging, from liquidity management through to diversity and inclusion. The report also explores wider themes including the role of the industry in the UK’s economic recovery and the implications of the end of the Brexit transition period, and presents new data on the rising importance of sustainable and responsible investment which, if anything, appears strengthened by the pandemic.
Chris Cummings, Chief Executive of the Investment Association, says: “It is a mark of the industry’s resilience and focus on delivering for savers that total industry assets have reached GBP8.5 trillion, significantly driven by customers from around the world choosing the services of UK investment managers. While the industry recognises the need for extra diligence as we navigate our way through the dual challenge of Covid-19 and Brexit, we are already preparing for the world of tomorrow. The considerable growth in responsible and sustainable investing over the last 18 months, which has gathered even more strength through the pandemic, is a critical indicator of things to come.”
The industry serves a global client base, managing GBP3.6 trillion (43 per cent of total assets) on behalf of overseas clients. The majority of those assets (GBP2.1 trillion) come from savers in Europe, although assets from clients in North America and Asia saw the highest year-on-year increases in 2019, reaching GBP700 billion and GBP520 billion respectively.
Investment managers are keen to play their part in the rebuilding of the country’s economy, building on significant new funding already provided to UK businesses. Since March 2020, over GBP14 billion has been provided to publicly-listed UK companies. At the end of 2019, investment managers had invested GBP1.6 trillion in the UK economy which includes GBP950 billion in UK equities and GBP450 billion in corporate bonds.
Investment in infrastructure projects will also become increasingly more important in the context of Covid-19 and constrained government finances. Total investments in UK infrastructure by IA member firms rose to GBP45 billion - up from GBP35 billion in 2018. Some 78 per cent of this investment was in economic infrastructure projects such as energy generation, transport and utilities, while the remaining 22 per cent was in social infrastructure projects, such as the construction of schools and hospitals.
Responsible investment has emerged as the standout opportunity through the crisis. At the end of 2019, 38 per cent of total assets under management were subject to ESG integration, which includes both pooled vehicles and segregated mandates. In the UK fund market, UK investor appetite for responsible investment products continues to rise with total funds under management in these type of funds increasing 89 per cent over the 18 months leading to June 2020. Sales for the first half of 2020 were four times higher than in the first half of 2019. Persistent sales to responsible investment funds were particularly notable during the height of the pandemic when record outflows from the fund market in March were followed by a recovery that saw record inflows of almost GBP1 billion into responsible investment funds in April.