Our expert opened the meeting with the well-known quote ‘lies, damned lies and statistics’ and how they can be misleading and used to bolster weak arguments. According to EFAMA, the European trade association, there is £9.5trn (€11.5trn) in assets under management in Europe.
The state of play:
- Our expert opened the meeting with the well-known quote ‘lies, damned lies and statistics’ and how they can be misleading and used to bolster weak arguments. According to EFAMA, the European trade association, there is £9.5trn (€11.5trn) in assets under management in Europe. The problem is that the data is gathered from domestic trade associations and no attempt is made to remove the double-counting. Why is there double-counting? Consider German asset managers which have funds domiciled in both Germany and Luxembourg — the German-owned Luxembourg-domiciled funds are counted by both the German and Luxembourg trade associations – repeat that across all the markets and you begin to understand the scale of double-counting.
- The UK fund industry has £1.3trn in assets under management, which represents 14% of Europe’s assets according to EFAMA, but based on the above, it could be significantly higher. Unlike other large European markets, the UK has been home to strong growth because it is an advice-dominated distribution market. European distribution is generally bank-dominated with a sell mentality and less regard for consumer outcomes. Equally, banks see funds as part of their product range and will sell other products if the time is not right for funds or if they need to repair their balance-sheets. The UK has seen assets grow 153% in the last ten years, compared to Europe’s overall 112%. But individual markets had very different experiences. Germany’s growth was much lower and France has been home to asset shrinkage over the ten-year period.
- So, the fact that the UK is an advice-dominated market is a good thing. Advisers have learned their lessons from two big crashes (the tech boom and the global financial crisis) so when corrections happen, they do not panic (like now for example). That is not to say that it’s plain sailing for the UK. It faces a number of challenges including Brexit, the rise of passive investment in the low interest, low return environment and digitalisation. Robo-advice has been slow to catch on but once big UK banks get behind it (probably by acquiring an established robo-adviser), then the switch to fintech could be significant. But this is still a long way off.
Will the UK lose its EMEA head office role?
When discussing their expectations for the UK in a post Brexit world, delegates largely agreed that the UK will lose its EMEA head office role and this will impact its place as a global centre. But when the question was turned around – if not here as the global centre, then where – delegates all struggled to pinpoint a market. Instead, delegates agreed there would not be a European centre, and instead we will have small clusters of power (with London remaining a prominent one of these clusters).
Will Brexit impact the UK’s ability to attract talent?
One delegate who did emigrate to the UK for work noted that, previously, the UK was able to attract talent like no other country in Europe had been able to do. He stated that London’s ability to appreciate talent above all else was its major selling point, however we cannot supply that talent through homegrown employees alone. He noted that the UK which attracted him at the start of his career is not the same UK we are living in now, and in future young people would be burdened with barriers such as visa applications and applying on a points system.
Remote working will become more central to our working patterns:
Conversely, while debating the influence the UK could have in 10, 20 or 30-years’ time, delegates touched on the importance location will have in the future, as remote working* becomes more central to our working patterns. In fact, being a ‘global centre’ might be much less about where we are physically, but rather more about world leading outputs in terms of innovation, regulation and consumer outcomes.
* and this is a trend which must be exacerbated by the impact of Covid 19.
So, what is the future of asset management in the UK?
- One delegate suggested ESG. Consumers want their capital stored in companies with careful stewardship and the UK active fund management industry is in the best position to get that stewardship right, and in fact a wall of passive money follows immediately behind active allocations that get it right.
- Another delegate suggested it was more about transparency. New investors, namely millennials, want as much information as they can get. They want to know what their pension is invested in, who is managing it and how much it is costing them. However, they aren’t getting the information they need right now. When they call advisers, they are told to ‘go away’ because they don’t have enough money. Distributors need to factor in this new audience, even if it’s a loss leader, because they are the investors of the future. After a lengthy discussion about millennial behaviour, a third and final suggestion for the UK’s future came out – Fintech – as it is these platforms younger investors are turning to, and the only companies who are successfully getting millennials saving.
Conclusions:
- The UK currently has a substantial portion of the European assets under management (although the numbers should be viewed with caution due to potential double counting as rehearsed above).
- London will not be replaced as an EMEA centre. Rather, we will see lots of small clusters of power.
- London will need to invest in talent in order to stay a relevant and attractive place to work, as Brexit risks placing barriers in the way of young talent.
- The future of the UK asset management comes down to three things: ESG investments, offering transparent and reliable service and further developing our Fintech offering.
