EY ITEM Club

Outlook for Financial Services Spring 2015

Forecast for Wealth and Asset Management

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“Market conditions for UK asset managers remain favourable and have seen assets under management (AUM) at record levels and rising. Looking forward, socio–demographic, economic and policy developments are also offering growth opportunities for managers.”
Gillian Lofts
Partner, UK Asset Management
Read Gillian’s full Wealth and Asset Management viewpoint

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EY - Gillian Lofts
Gillian Lofts
Partner,
UK Asset
Management

Market conditions for UK asset managers remain favourable and have seen assets under management (AUM) at record levels and rising. Looking forward, socio–demographic, economic and policy developments are also offering growth opportunities for managers. ↓ [... more]

Pension reforms present opportunities

The major UK pension reform coming in April will give retirees more control over their pension pots. At an estimated £12b, the accessible annuities pot is not revolutionary for the asset management industry. But the changes are welcomed and managers are diligently responding. The key point here is not the size of the accessible annuities market today, but how accumulation and decumulation products will develop and grow to meet consumer demands over the medium term.

It is widely acknowledged that there is currently a lack of supply of these products and managers are stepping in to provide the investment building blocks, which will then be wrapped and distributed by banks and insurers. Product development in the asset management industry is a measured process and, quite rightly, managers are incubating funds which we expect to see come to market at a steady pace over the coming period.

A pivotal role

As UK economic growth picks up, the other key development for the sector is the pivotal and growing role that asset managers are playing in financing the “real economy.” This shift — which is evident across Europe, but is especially prevalent in the UK — was highlighted by a recent EY–sponsored study. The research found that European asset managers hold 23% of European debt securities outstanding, which is equivalent to 32% of the value of European bank lending. Similarly, the value of equity held by European asset managers corresponds to nearly 40% of the free float of European listed firms.

Practically speaking, we are seeing a greater constituency of firms involved in alternative credit, private equity, real estate and infra-capital. A combination of risk profiling, retirement demands and economic backdrop will likely see this trend continue. In the face of concerns that ever–larger trading volumes in financial markets may carry no benefits for society, this report confirms that the asset management industry has been instrumental in making markets more frictionless places in which to deal. This translates into lower trading costs and higher net performance for all participants.

Actual and/or prospective changes in the political landscape in the UK and Europe are likely to create some uncertainty for both investors and managers in the coming period. The greatest antidote to this will be the continuity of policy developments and regulatory and physical frameworks.

 

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Wealth and asset management highlights:

With the opportunity to capture a significant share of assets that, in the past, would have gone to insurance companies, prospects for the wealth and asset management sector look bright.

  • AUM are forecast to grow by 6.5% per year from 2015 to 2018, reflecting robust economic growth and rising household wealth.
  • From April 2015, pension reforms will give asset managers the power to retain or target assets that would otherwise have gone into annuities.
  • The prolonged period of very low inflation will support bonds; however, we forecast bonds’ share of total AUM to decline from 17.3% in 2014 to 14.7% in 2018.
  • In Q3 2014, direct holdings of equities as a share of UK households’ total financial assets rose to 13.1%, the highest since the middle of 2011.