EY ITEM Club Financial Services Spring Forecast 2014

EY ITEM Club Forecast: Outlook for Financial Services Spring 2014

Forecast for Asset Management

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In 2014 total assets under management (AUMs) are expected to reach £880b, up 9% on 2013. A strong increase in equity funds is anticipated, with a forecasted rise of 9% by 2014 as the economic recovery boosts investors’ appetite for risk and the Budget’s savings reforms kick in. In 2013, £16b was held in property funds a record high, and we continue to expect strong inflows over the next four years rising to £20b by 2018.

“The overall sense among asset managers is that the proposed reforms will give them an opportunity to play a greater role in both the accumulation and decumulation market.”
Gillian Lofts
Partner, UK Asset Management
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EY - Gillian Lofts
Gillian Lofts
Partner,
UK Asset
Management

Favorable market conditions and increasing risk appetite continue to improve UK asset managers’ outlook. Good performance and net inflows are encouraging many to invest for the future. Areas to focus on include client experience, client reporting, geographic expansion and — as explored in the previous forecast — the search for new products and services. The announcement of changes to the UK’s pension framework, therefore, comes at a very interesting time for the industry.

The overall sense among asset managers is that the proposed reforms will give them an opportunity to play a greater role in both the accumulation and decumulation market. But what will this mean in practice? We expect to see a range of responses. Asset gatherers and firms with established capabilities in areas such as income management or liability-driven investment are most excited about the planned changes. They see clear potential to increase their assets by focusing on capturing pension savings and decumulation. Many of these firms are initiating or accelerating product development specifically targeted at investors who might otherwise have invested in annuities. ↓ [... more]

In contrast, many other asset managers hope to benefit from the proposed changes but are not currently planning to develop new capabilities. Instead, they are expecting that pension reform will encourage consumers to invest more in their existing products. There is a definite recognition that asset managers will play a significant role in providing the building blocks for pensions and savings going forward.

Whatever the effect of the proposed changes, a single change will not be enough to reverse the current levels of pension under investment in the UK. That is likely to require further legislation, supported by lifelong financial education and greater involvement from employers. Above all, a long period of stability is required if significant growth in long-term savings is to be achieved. Consumers need to believe that the new pension framework will enjoy the support of future governments.

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Asset management highlights:

  • Total assets under management (AUMs) are forecast to reach £880b in 2014, up 9% on 2013.
  • If one quarter of the current £12b annual UK annuity market were to flow into investment products, this would add £3b a year to flows into AUMs, about 10% of UK retail flows in 2013.
  • A strong increase in equity funds is anticipated, with a forecast rise of 9% in 2014 as the economic recovery boosts investors’ appetite for risk and the Budget’s savings reforms kick in.
  • 2013 saw £16b held in property funds, a record high. We continue to expect strong inflows over the next four years with AUM rising to £20b by 2018.