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UK asset management growth set to outpace the US and EU

12 / 02 / 2019

Global buy-side professionals have predicted that UK asset managers will grow faster than their counterpart firms in the US and the EU, despite the potential risks of Brexit.

A new survey from Bloomberg Intelligence and Simmons & Simmons revealed assets under management (AUM) are expected to climb nearly 22% in the UK between now and 2025. This figure was just slightly lower than in APAC countries, which topped the list with approximately 23% growth. Meanwhile, forecasts for the US and Europe (excluding the UK) were notably lower at roughly 17% apiece.

The positive performance for the UK was considered the "standout result", according to Bloomberg Intelligence, particularly given the country's impending split from the EU. The survey showed 32% of asset managers believe Brexit will have a 'negative' or 'very negative' impact on the industry over the next 6 years.

What factors are affecting the industry in 2019?

The UK's £8 trillion asset management industry is the largest in Europe and second only to the US globally. However, asset managers in the country have faced increased EU-wide regulation through MiFID II and PRIIPS over the last year.

The Financial Conduct Authority (FCA) also published a market study into the UK asset management sector in June 2017, which outlined the need for greater competitiveness and transparency. The FCA has since published a list of proposals to streamline asset management and ensure investors receive a best-practice service.

Increased regulation has inevitably had an effect on profitability. The Bloomberg survey found 20% of firms cited compliance as creating material increases in their costs over the short term.

Rising costs are being exacerbated by declining fee incomes, with global asset managers expecting fees to increase by only 8% by 2025. New regulatory-driven fee structures, competition from peers and the success of new market entrants are expected to be the biggest drags on fee income over the coming years.

How are asset managers adapting to industry changes?

Asset managers are taking several different approaches to tackle profitability problems. More than a quarter (27%) wish to expand into alternative investment styles, while a further 20% are considering ramping up their actively managed investment strategies.

Bloomberg believes different asset classes will also become popular, as different investor demographics - such as millennials - begin to comprise a larger proportion of AUM. Interest-rate sensitive asset classes, such as sovereign and corporate bonds, are predicted to fall out of favour, while equities and infrastructure are in the ascendency.

Technology is becoming increasingly prevalent within asset management, with businesses keen to increase the efficiency of their back and front offices. Straight through deal processing, distributed ledger technology and artificial intelligence are helping to revolutionise several areas of asset management. These include risk management, compliance, securities trading and monitoring and client relationship management.

"[Our] survey demonstrates that asset managers recognise that it will be challenging to maintain AUM, particularly in light of regulatory reform and supervisory scrutiny," said Sarah Jane Mahmud, Senior Regulatory Analyst at Bloomberg Intelligence.

"Their response to those challenges will dictate the evolution of the industry, so it's clear that this will be an extremely influential period."

Workforce challenges ahead for asset managers

As we can see, the asset management industry will face complex challenges this year and beyond. Firms will therefore require employees with the sophisticated skills and experience to handle these difficulties with aplomb.

However, talent acquisition and retention remain major problems for asset managers. More than a quarter (27%) of professionals in the Bloomberg study highlighted these issues as their biggest 'people' worry - more than any other workforce-related dilemma. Salary expectations (21%) and regulatory complications such as SMCR (17%) were also frequently cited concerns.

Our own research recently revealed that 73% of asset managers struggled to hire risk managers with either the right technical or interpersonal capabilities to meet their business's demands last year. Furthermore, two-thirds of asset managers are expecting to recruit in 2019 to fill gaps in their risk management teams.

The UK's asset management industry looks set to shake off Brexit and continue performing well in spite of multiple headwinds on the horizon. Nevertheless, firms will need strong, technically capable people to ensure they take advantage of upcoming opportunities.

Is your firm looking to strengthen its corporate governance frameworks for the challenges ahead? Please contact me on 020 7936 2601 or via email at jl@barclaysimpson.com to discuss your needs.

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