UK Fund Managers Becoming Restive?
Tuesday, July 27, 2010

UK asset managers representing over GBP2 trillion of investments are raising serious questions about the UK as a focus of future expansion, according to the Investment Management Association (IMA).

The IMA's eighth Annual Asset Management survey, published July 26, includes a series of in-depth interviews with 24 CEOs, CIOs and Chairmen from a cross-section of firms. Twenty-two of them - managing over GBP2 trillion in the UK - indicate that a lack of certainty around taxation and immigration policy could force some firms to relocate existing facilities to rival international financial centres and focus future expansion plans outside the UK. However, all asset managers interviewed saw the potential for the new Coalition Government to allay current concerns and create certainty about the future of the UK, to ensure its competitiveness as a place to do business.

Despite these concerns, respondents to the IMA's survey also identified a number of attractions for the UK as a business location, ranging from ‘natural advantages' of time-zone and language to its proven ability to attract talent internationally and the current relatively benign regulatory regime. The importance of being part of a wider financial cluster - especially the proximity to the sell-side - was also viewed as an important factor for many firms.

The IMA concludes that, in the longer term, there are significant opportunities for the industry, both domestically and internationally, particularly in the area of retirement provision.

Richard Saunders, Chief Executive of the IMA comments: "Asset managers still rate the UK's investment infrastructure and reputation as a premier league financial services centre. They are not about to up sticks, but there is certainly more restiveness about the UK this year than last, with particular unease around the impact of tax and immigration policy. In our view, this presents the coalition government with a strong opportunity to provide certainty to an industry managing assets equivalent to 240% of UK GDP."

The eighth annual IMA Asset Management Survey indicates a resilient GBP3.4 trillion asset management industry reporting a record year for funds, with the largest retail inflows in the industry's history. The sector attracted a record GBP26 billion in new retail investments in 2009, and remains the largest asset management centre in the EU, with 30% of total assets under management.

Asset managers acknowledge there are lessons to be learnt from the financial crisis, but respondents said they were keen to see a proportionate response to the crisis that is coordinated internationally.

The majority of firms interviewed also considered the EU Alternative Investment Fund Managers Directive a "questionable" piece of legislation motivated by pre-existing hostility to certain parts of the wider asset management industry. Those interviewed by the IMA agreed the Directive risks having a disproportionate and damaging impact across the asset management industry and for its clients: pension funds and consumers.

Saunders adds:

"The asset management industry is clear there should be no return to the status quo as it existed before the crisis, but equally clear that regulation must target the root causes of the crisis and not demonize the financial services sector as a whole. There is general consensus that UCITS has been a good thing for the industry and allowed funds to market themselves across Europe, from which the UK industry has been a major beneficiary.

"But it is dispiriting that the response to a banking crisis has been a fund management directive. At the most basic level, it is crucial that policymakers draw careful distinction between asset managers, who act firmly in the interests of their retail and institutional clients, and the own-account trading activities of investment banks."