By Jonathan Lipkin
Changing longevity and increasing wealth – both in the UK and internationally – have contributed to what Andrew Haldane of the Bank of England has called an ‘Age of Asset Management’. An industry lesser known 20 years ago is now moving into the spotlight.
The nature of the public policy response to a shift that is seeing many people living longer and healthier lives has had a particular impact on the visibility of asset managers. Automatic-enrolment has brought millions of new savers into contact with the investment process. At the same time, the transfer of investment risk in defined contribution (DC) schemes, along with the new ‘Pension Freedoms’, mean individuals are being asked to take much more responsibility for later life provision.
UK pension reform has coincided with a challenging period for financial markets and the wider economy, both post-dotcom bubble and particularly post-2008 global financial crisis. This broader context is bringing a further structural shift: asset managers are stepping in with greater funding for companies and projects in an environment where both banks and governments are more constrained.
Research from independent economic consultants Oxera, shows that the UK asset management industry already provides 60% of new equity and bond financing received by British businesses in
recent years. This facilitates economic growth, job creation and tax revenues. We expect the role of our firms to grow further in the coming years.
In terms of product design, we have seen innovation and intensifying competition both in the retail and institutional space, notably the growth of passive building blocks and a more outcome-oriented product focus. Longer term, this outcome focus, including a greater role in asset allocation and risk management, is likely to define active management more broadly. In this context, pension reform, particularly greater flexibility in the retirement income market, is expected to drive further innovation, as well as provide new opportunities for existing capabilities, notably income funds. In a low interest rate environment, income is a clearly a major client theme domestically and internationally.
But with new opportunities comes political and regulatory scrutiny in multiple areas, particularly transparency. The Investment Association is at the forefront of helping our members meet both the spirit and letter of new regulation, and is currently building a disclosure code which will be released for consultation later in the year. Our framework will provide full accountability of costs incurred in investment management – from the charge paid to managers through to the transaction costs incurred in capital markets as part of the investment process.
Finally, Brexit will of course be a defining theme for clients and the industry alike. We are confident that our firms are in a strong position to continue to serve domestic, continental European and international clients from the UK. We are working closely with government and other stakeholders to ensure that the future regulatory and trade environment facilitates this as effectively as possible.
Jonathan Lipkin is director of public policy at the Investment Association
