The UK has established itself as one of the largest and most diverse centres of investment management in the world.
In fact, it’s second only to the United States and by far the largest in Europe, according to a report from the Investment Association (IA).
The respected trade body estimates the UK investment management industry was looking after £11trn ($15trn) in 2020 – £1trn more than the previous year.
Resilience was a critical theme
The IA’s study, entitled ‘Investment Management in the UK 2020-2021’, highlighted how resilience was a critical theme for the industry as the global pandemic accelerated through 2020.
“Firms we spoke to this year for our survey emphasise that the investment management industry in the UK and internationally was able to adapt very quickly to the unprecedented challenges, both from an operational and investment perspective,” it stated.
There was also a clear acknowledgement of the important role played by policymakers, on both the fiscal and monetary sides.
So, what’s next for the UK investment management industry? How is this fast-growing area expected to develop over the next few years? What trends are we likely to see?
The IA has identified five key themes that it believes are helping to shape investment management industry activity both in the UK and internationally.
Here we take a look at each in turn.
Theme one: Investing responsibly and sustainably
Responsible investing enjoyed significant growth during 2020 – despite initial suggestions that it would take a back seat during the Covid-19 issues.
“Firms have emphasised a strong interest both in the investment themes themselves and performance,” stated the report.
It found climate change was a predominant concern, with the transition to net zero an initiative that’s supported by governments around the world.
The report highlighted that the role of investment managers as agents of change in pushing firms to reduce emissions should not be understated.
“Divesting too quickly from companies with high emissions risks leaving those assets stranded and there is a significant opportunity to invest in companies to support transition and to cement the UK’s position as a leader on climate change,” it added.
As part of the overall approach to this area, industry-wide efforts are underway to develop a consistent set of definitions and classifications around responsible investing products.
Theme two: Widening sources of investment return
Interest in private markets has grown in the last few years, according to the report.
This has been driven both by the growth of market-based finance outside public markets and by investors looking to diversify their investment portfolios.
The way in which investment managers deploy capital across the economy is a closely linked theme to responsible and sustainable investment.
“This is reflected in an increasingly wide-ranging debate about the role of public and private markets,” it added.
Over the past year, two key themes have emerged.
The first is how capital can be deployed more effectively into private markets on behalf of retail and defined contribution (DC) pension customers.
Secondly, there is the relationship between private and public markets, including the role of special purpose acquisition companies (SPACs) and the broader topic of corporate governance standards.
Theme three: Transforming the operating culture
There has been an increasing emphasis on culture over the last five years, according to the report, both by the Financial Conduct Authority and the industry itself.
“While this was initially concentrated on customer delivery – which remains a key focus – the pandemic has increased the attention being given to the change needed in internal operating norms,” it stated.
A particular focus has been on ensuring a “committed, energetic and holistic approach” to the subject of diversity and inclusion.
The study also found that the focus on customer delivery, whether in retail or institutional markets, had never been greater.
“For regulators, there is also a major focus on governance and communication in the wider context of an emphasis on good firm culture as the foundation,” it added.
Separately, a standout area of focus that has emerged as a result of the pandemic has been a focus on the mental health and wellbeing of staff.
“Regardless of personal circumstances, prolonged periods of lockdown, isolated living and working conditions, and increased blurring between working and non-working hours has had a universal impact on employees across the industry,” the report added.
Theme four: Embracing technological change
Remote working has helped to accelerate the adoption of – and investment in – new technology across the industry.
This has been seen at every level, including idea generation, investment operations and overall fund delivery.
The study focused on a recent Investment Association roundtable discussion with financial advisers, investment platforms and fund research houses.
It said these conversations “highlighted the importance of technology and digital delivery” in engaging a new generation of investors.
“One particular area of focus is the need to promote trust in the industry in order to persuade younger generations to embrace fund management, building on an evident interest in trading and cryptocurrency among many,” noted the report.
Theme five: Adapting to the post-Brexit landscape
The entire UK investment management industry is adapting to the new post-Brexit environment, as are many other industries, and remains “vigilant to the potential threats” to UK competitiveness.
This is both in terms of the future treatment of delegation and the appropriate balance between convergence and divergence with EU regulation and international standards.
The industry has outlined three key elements to maintain a competitive landscape for fund delivery internationally: opportunities for innovation; improving the operating environment; and support for competitive delivery.