Press Release

IMA Publishes 2007 Annual Survey Of Industry

8 August 2008

The Investment Management Association (IMA) has today published its 6th Asset Management in the UK Survey, the most comprehensive study of the UK asset management industry.  This year's Survey includes a section on the credit crisis based on interviews with senior figures from IMA member firms.

Key Findings as at December 2007:

£3.4 trillion (2006: £3.1 trillion) = total assets managed in the UK by IMA member firms, of which:
£1 trillion is managed on behalf of overseas clients
£468 billion is in UK domiciled funds (OEICS, unit trusts)
£570 billion is in offshore funds
44% = proportion of UK stock market held by IMA member firms
£10.2 billion = revenue earned by UK-based asset management firms in 2007
 
 
Overview as at December 2007

IMA member firms manage £3.4 trillion of assets in the UK: institutional clients account for 76%, retail for 23% and private client for 1%.
30% (2006: 27%) of total assets under management are for overseas clients, with a positive balance of payments impact for the UK estimated at £2.5 - £3 trillion.
Of the £3.4 trillion under management, 52% is invested in equities (of which half is UK equities), 32% in fixed income, 9% in cash/money market instruments and 4% in property.  Matched samples suggest a continued movement out of equities.
The UK accounts for 34% of assets under management in Europe, followed by France (20%) and Germany (10%).
Richard Saunders, Chief Executive of IMA commented:
"The UK investment management industry is becoming increasingly sophisticated and international. It is larger than the world's sovereign wealth funds and hedge funds combined."

Institutional Market as at December 2007

Equities account for 44% (2006: 49%) and bonds for 38% (2006: 35%).
There is continued diversification both out of equities into other asset classes (with a particular interest in alternatives) and out of UK equities towards global mandates.  
Within the actively managed part of the institutional market firms report a focus on unconstrained and absolute return strategies.
The outlook for defined benefit (DB) schemes has not improved and a particular concern is proposed changes to accounting standards, which might result in the risk-free rate being used to report pension liabilities under FRS 17.
A senior figure from an IMA firm commented:
"We are concerned about the seeming inevitability of the death of DB.  I think that society is sleepwalking into sacrificing what has been an extraordinarily effective system."   

Funds Market as at December 2007

Assets managed in the UK on behalf of retail clients (including both UK and overseas domiciled funds) are estimated to account for some £770 billion (2006: £650 billion).
Equities account for nearly 75% of total retail assets under management.
Within the European market (ranked by country of fund domicile), the UK is the fifth largest in asset terms with a 10% market share.
Net retail sales for the year were at £9.5 billion (2006: £15.3 billion).  This sharp fall from the previous year was concentrated in the fourth quarter, after the credit crisis took hold.
While the number of funds has risen by around a quarter since 1998, the proportion of firms recording positive net sales has fallen to 55% (2000: 75%).
Richard Saunders, Chief Executive of IMA commented:
"Economic conditions in the latter half of 2007 led to greater caution among investors and net retail sales slowed significantly.  Unsurprisingly, equity funds were the worst hit as investors shifted their assets, moving towards less risky and more conservative products. This caution is likely to persist in the immediate future, given current market conditions."

Credit Crisis

Senior figures from IMA member firms generally agreed that the availability of cheap money facilitated a wave of imprudent lending.
The impact was exacerbated by institutions packaging up and selling on their debts, combined with high levels of leverage.
Other causes included inadequate risk controls in investment banks, the failure of credit rating agencies to adequately assess the risk level of financial products, and insufficient scrutiny along the value chain.
The UK asset management industry and its clients have emerged relatively unscathed.  However, those interviewed felt that the asset management industry could learn lessons from recent events, in particular in relation to reassessing approaches to risk analysis and management, as well as the design of products.
Regulation of the financial services industry did not prove effective.  There is a need for better, more focused regulation, not more regulation.
Comments from senior figures included:
"When the gods of greed meet the lords of leverage, you get a big problem.  Greed is not new.  Reckless lending is not new.  Imprudent borrowing is not new.  But reckless lending and imprudent borrowing in combination with astounding levels of unregulated leverage is new."

"I hope that the investment management industry has re-learned what has become the golden rule.  The golden rule should be if you don't understand it, don't buy it and if your client cannot understand it don't sell it."

"The way in which the tripartite system is constructed meant that there was nobody with effective day-to-day, week-to-week responsibility for the functioning of financial markets and liquidity provision, and nobody who really understood how to read the signs and how to get the mechanisms in place. We need to give the Bank of England responsibility for day-to-day functioning of liquidity."

Operational Issues

Revenue rose 16% year-on-year to reach £10.2bn in 2007, with a GDP contribution estimated at 0.6%.
Direct employment was 25,500 with thousands more indirectly employed by the industry.
In contrast to the more benign assessment last year, there is concern within the industry about a range of developments on the both the regulatory and tax side.
On the tax issue, comments from senior figures included:
"The level of volatility and uncertainty, coupled with a lack of explanation regarding the thinking, has made people more concerned about the UK as a domicile to operate from."

To view IMA's Asset Management Survey click here.