Research fund management 2010

Fund Management 2010
www.TheCiTyUK.com

The UK is one of the largest markets in the world for fund management
along with the US and Japan. It has a strong international orientation and
attracts significant overseas funds. London is the leading international
centre for fund management.

OCTOber 2010
Chart 1 Global fund management industry
assets under management
assets under management, 2009, $ trillion

SUMMAry
Global fund management conventional assets under management of
the global fund management industry increased by 14% in 2009, to $71.3
trillion (charts 1 and 2), slightly below record levels seen two years earlier.
Pension assets accounted for $28.0 trillion of the total, with $22.9 trillion
invested in mutual funds and $20.4 trillion in insurance funds. Together
with alternative assets (sovereign wealth funds, hedge funds, private
equity funds and exchange traded funds) and funds of wealthy individuals,
assets of the global fund management industry totalled around $105
trillion at the end of 2009, up 15% on the previous year.

28.0

Pension funds
Mutual funds

conventional
investment

management
assets

22.9

Insurance funds

20.4

SWFs

3.8

Private equity

non-conventional
(alternative) investment
management
assets

2.5

Hedge funds

1.7

ETFs 1.0
Private wealth1

39.0

0

5

10

15

20

25

30

35

around one-third of private wealth is incorporated in
conventional investment management
Source: TheCityUK estimates

40

1

The increase in 2009 followed a 18% decline in the previous year and was
largely a result of the recovery in equity markets during the year. Part of
the reason for the increase in dollar terms was the depreciation in the
value of the US dollar against a number of currencies in 2009. Although
some funds were exposed to instruments which suffered losses, on the
whole, fund management was affected much less than the banking sector

by the recent economic downturn. The economic downturn may however
have a longer-term effect on the fund management industry in prompting
more cautious investment strategies in the coming years and more
diversification across asset classes and geographical regions.

Chart 2 Global fund management of
conventional assets
conventional assets under
management, $ trillion

80

76.4

70

66.7

The US remained by far the biggest source of funds in 2009, accounting
for around a half of conventional assets under management or some
$36 trillion. The UK was the second largest centre in the world and by far
the largest in Europe with around 9% of the global total.
UK fund management UK assets under management increased 12% in
2009 to £4.1 trillion. This was slightly below the record amount under
management two years earlier. These figures represent a conservative
estimate as they do not take into account significant funds managed in the
UK for which there are no precise data such as funds managed on behalf
of sovereign wealth funds as well as private client funds managed, for
example, by family offices.

62.7

58.9

60

71.3

53.6

50

46.9

39.8 40.1
37.7
40

30
20
10
0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: TheCityUK estimates

The UK fund management sector has a strong international orientation
reflected in the: institutional presence of a broad mix of UK and foreign
firms; investment of over a quarter of institutional clients' portfolios in
overseas securities; and management on behalf of overseas clients of
funds totalling over £1.4 trillion. London is central to the UK’s strong
international position. Edinburgh and Glasgow are also important
international centres for fund management.
Fund management accounted for 0.67% of UK GDP in 2009 and provided
employment for over 50,000 people. Net exports of UK fund management
totalled £2.9bn in 2009. Fund management margins fell to 33% in 2009
from 34% in the previous year and 37% in 2007.

1

TheCityUK

Fund Management 2010

GLObAL FUND MANAGeMeNT
According to ThecityUK estimates, assets of the global fund
management industry totalled over $105 trillion, up 15% on the
previous year (chart 1). There was also an additional $13
trillion held in money market funds.

Table 1 Sources of conventional investment management
assets1
$bn, end-2009
US
UK
Japan
France
Germany
Netherlands
Switzerland
Other
Total

Assets of the global fund management industry consist of:
-

Conventional funds (pension funds, mutual funds and
insurance companies) totalling $71.3 trillion at the end of
2009;

Total
conventional
35,880
6,081
4,489
4,213
2,336
1,608
1,102
15,062
71,262

%
share
50
9
6
6
3
2
2
21
100

figures are for domestically sourced funds regardless where they are managed.
No reliable comparisons are available for total funds under management by
country
Source: TheCityUK estimates based on Watson Wyatt, OECD, Insurance
Information Institute, Investment Company Institute, SwissRe, CEA data

Alternative funds (hedge funds, private equity funds,
exchange traded funds and sovereign wealth funds)
generating some $9 trillion of funds; and

-

Private wealth funds which generated an additional $39.0 trillion in
funds. About a third of this was however incorporated in other forms
of investment management.

The increase in assets under management in 2009 was largely a result of
a recovery in equity markets following a sharp fall in the previous year.
Part of the reason for the increase in dollar terms was the depreciation in
the value of the US dollar against a number of currencies in 2009.
Although some funds were exposed to instruments which suffered losses,
on the whole, fund management was affected much less than the banking
sector by the recent economic downturn.
Conventional funds of the global asset management industry increased
by 14% in 2009 to $71.3 trillion, following a sharp fall in the previous year
(chart 2). Pension assets accounted for $28.0 trillion, with a further $22.9
trillion invested in mutual funds and $20.4 trillion in insurance funds
(Table 1).
The US was by far the largest source of conventional funds under
management in 2009 with around a half of the world total. It was followed
by the UK with 9% and Japan and France with 6% each. Rankings based
on sources of assets understate the UK’s position due to the substantial
value of funds managed there on behalf of overseas clients. Taking these
into account, funds managed in the UK are by far the largest in Europe.
The Asia-Pacific region has shown the strongest growth in recent years.
many fund management firms have shown an increased interest

in countries such as china and India as they offer huge potential for
growth.
of the largest countries, the UK has the highest ratio of funds as a per cent
of GDP (278% in 2009), followed by the US (252%), Switzerland (223%)
and Netherlands (202%) as shown in chart 3. The global average was
123%.

2

Mutual
funds
11,121
729
661
1,806
318
96
168
7,984
22,883

Insurance
assets
6,671
2,808
2,785
2,188
1,844
484
387

2,724
20,383

1

-

-

Pension
funds
18,088
2,544
1,043
219
174
1,028
547
4,353
27,996

Pension fund assets Global pension assets totalled $28.0 trillion at the
end of 2009 according to ThecityUK estimates based on oEcD data.
The US remains the largest single market with $18.1 trillion in pension
assets, nearly two-thirds of the world total. The UK was the second

Chart 3 Funds as percent of GDP
% of GDP, (by source of funds), 2009

300

Mutual funds
Insurance assets
Pension assets

278
252

250

223
202

200

157

150

123

100
50
0

France
Switzerland
Netherlands
World
US

Source: TheCityUK estimates based on Watson Wyatt,
OECD, Insurance, Inf. Inst., IMF, Investment
Company Institute, SwissRe, CEA data
UK


TheCityUK
largest centre (with 9% of the world total) followed by the Netherlands
(4%). The large volume of pension assets in the US is mainly a
reflection of its substantial domestic market. The UK pension system
with assets equivalent to 116% of GDP in 2009, is more heavily
funded than most other major European economies.

Fund Management 2010
Chart 4 Worldwide Mutual Funds Assets
assets under
management, $ trillion

30
25

-

-

Insurance funds ThecityUK estimates that insurance companies held
around $20.4 trillion of funds under management at the end of 2009.
Approximately four-fifths of the total was from long-term insurance
policies and the remainder from general policies, such as health and
property and casualty insurance. over the past decade, insurance

funds grew faster in Europe than in the US. Life companies’ funds also
grew faster than non-life ones. UK insurance companies’ funds under
management totalled around $2.8 trillion, much higher than in any
other European country.
Mutual funds’ assets increased by 21% in 2009 to $22.9 trillion
following a 27% decline in the previous year. The bulk of the increase
came in the second and third quarters in the year (chart 4). most
mutual funds are generated in only a few countries. The US was by far
the biggest source of funds with more than a half of the world total.
UK mutual funds increased by 44% in 2009 to $729bn. However, this
was still below the record $897bn held two years earlier. other
important centres for mutual funds include France, Luxembourg,
Australia, Italy and Japan.

Institutional clients account for the majority of funds. There are substantial
variations, however, between countries in the institutional to retail ratio. In
France for example, the retail sector accounted for more than a half of
funds. on the other hand institutional investors were the biggest source of
funds in the US, UK and Japan.
Alternative funds totalled around $9 trillion at the end of 2009. They
consist of hedge funds, private equity funds, exchange traded funds and
sovereign wealth funds (these topics are covered in more detail in other
ThecityUK reports):
-

Hedge funds’ assets under management increased by 13% in 2009 to
$1,700bn. This followed a 30% decline in the previous year.
Redemptions continued for the second year running, albeit at a slower
pace. The 19% return in 2009, the best hedge funds’ performance in
a decade, more than made up for the $85bn in net outflows. The

number of hedge funds totalled around 9,400 at the end of the year,
a reduction of more than 1,000 from the peak seen two years earlier.
New hedge fund launches however exceeded the number of
liquidations in the second half of 2009. Growth of hedge fund industry
assets is likely to continue in the coming years barring further
economic turbulence or major regulatory changes.
London is the second largest global centre for hedge funds managers
after New York. Its share of the global hedge fund industry more than
doubled in the decade up to 2009 to 20% (chart 5). London is much
the largest European centre for the management of hedge funds. At
the end of 2009, four-fifths of European hedge fund investments
totalling $382bn were managed out of the UK, the vast majority from
London.

24.8 24.7

22.4 23.0 23.0

21.7

20

18.9 18.2

20.3

15
10
5
0

Q1

Q2 Q3
2008

Q4

Q1

Q2 Q3
2009

Q4

Q1
2010

Source: Investment Company Institute

Chart 5 Global hedge funds
$bn assets (bars)

Number (line)

2,200

12,000

2,000

1,800
10,000

1,600
1,400
1,200

8,000

1,000
800
600

6,000

400
200
0

2000
2002
2004
2006
2008
2001
2003
2005
2007 2009
Source: TheCityUK estimates

4,000

Chart 6 Share of global hedge fund industry,
London vs. New York
% share of global hedge
fund assets by location of
manager

New York
London

55
50
45
40
35
30
25
20
15
10
5
0

2000
2002
2004
2006
2008
2001

2003
2005
2007
2009

Source: TheCityUK estimates

3


TheCityUK
-

-

-

Private equity According to ThecityUK estimates, $91bn of private
equity was invested globally in 2009, a significant fall from the $181bn
invested in the previous year. The 2009 total was more than 70%
down on record levels seen in 2007. Funds raised fell by two thirds
during the year to $150bn, the lowest annual amount raised since
2004. Total private equity funds under management were unchanged
from the previous year at a record $2.5 trillion (chart 7). most of this
total resulted from strong fund raising activity in the period between
2005 and 2008 and unrealised portfolio investments, as firms were
reluctant to exit their stakes in market conditions of falling
valuations. Funds available for investments totalled 40% of assets
under management or some $1 trillion. These funds can be used to
inject capital into troubled portfolio companies or to fund new

investments.
Sovereign Wealth Funds (SWFs) ThecityUK estimates that assets
under management of SwFs fell by 3% in 2009 to around $3.8 trillion
(chart 8). The underlying value of SwFs’ portfolios probably increased
by 15% in 2009 if negative positions on equity market investments at
the end of the previous year are taken into account. SwFs funded by
commodities exports, primarily oil exports, accounted for nearly twothirds of assets. The remainder was funded by transfer of assets from
official foreign exchange reserves, and in some cases from
government budget surpluses, pension reserves and privatisation
revenue. There was also an additional $6.5 trillion held in other
sovereign investment vehicles, such as pension reserve funds and
development funds. ThecityUK projections are that SwFs are likely to
double from their current level to around $5.5 trillion in 2012. London
is an important centre in the management of sovereign wealth funds
assets, although it is difficult to estimate the size of funds managed
there due to lack of precise data.
Exchange Traded Funds (ETFs) Assets invested in ETFs increased by
45% in 2009 to a record $1,032bn as the markets recovered during
the year (chart 9 and Table 2). The global ETF industry had 1,939 ETFs
on 40 exchanges around the world at the end of 2009. The number of
ETFs listed in Europe reached 821 during the year, surpassing the 772
in the US. Institutional investors have been behind most of the
increase in ETF industry assets since the first fund was launched in
1993 in the US and in 2000 in Europe, but retail investors are
expected to become more active in coming years. The US is the
leading global centre for ETFs and accounted for 68% of global assets
under management in 2009. Europe generated around 22% of the
total with Germany and France accounting for more than a half of the
exchange Traded Funds are passively managed open-ended funds that are
listed and traded on exchanges. ETFs provide easy access to a broad

exposure of stock market, fixed income and commodity indices. most ETFs
consist of a basket of securities that trade at approximately the same price as
the net asset value of its underlying assets. They predominantly track an
index, such as the S&P 500 and can be traded continuously during trading
hours. more recently, ETF products are venturing into emerging markets, real
estate, infrastructure, private equity and hedge funds. Because ETFs can be
economically acquired, held, and disposed of, some investors invest in ETF
shares as a long-term investment for asset allocation purposes, while other
investors trade ETF shares frequently to implement short-term investment
strategies.

Fund Management 2010
Chart 7 Private equity worldwide assets
under management
$bn

Unrealised portfolio value

2,500

Funds available for investment

2,000
60%

46%

40%

40%

2007

2008

2009

54%

1,500
57%
1,000
53%

59%

56%

500

0

47%

44%

41%

2003

2004

2005

43%
2006

Source: Preqin; TheCityUK estimates

Chart 8 Sovereign wealth funds assets
under management
$bn

4,000
66%

Commodity

3,500

Non-commodity

3,000
2,500
2,000
1,500
1,000
87%

500

0

13%
1999

2001

2003

2005

2007

34%
2009

Source: TheCityUK estimates

Chart 9 Exchange-Traded Funds
Number of
funds

Assets,
$bn

1100

Other
Europe
US

1000
900

2000

1500

800
700
600

1000

500
400
300

500

200
100
0

2000
2002
2004
2006
2008
2001

2003
2005
2007
2009

Source: Blackrock

4

60%

0


TheCityUK
Difference between eTFs and mutual funds
while ETFs share some basic characteristics with mutual funds, there remain key
operational and structural differences between the two types of investment
products. ETFs are similar to mutual funds because both instruments bundle
together securities in order to offer investors diversified portfolios. ETFs trade
throughout the trading day, like a stock, while mutual funds trade only at the end
of the day at the net asset value price. most ETFs track a particular index and
therefore have lower operating expenses than actively invested mutual funds.
Investors purchase and sell ETF shares on a stock exchange through a brokerdealer, like they would any other type of stock. In contrast, mutual fund shares
are not listed on stock exchanges but are bought and sold through a variety of
distribution channels. In addition, ETFs have greater tax efficiency due to a
structure that allows them to substantially decrease or avoid exposure to capital
gains tax.

European total. The 142 ETFs listed in London accounted for around

5% of global assets. ETFs investing in the stock markets of Brazil,
china, South Korea and Taiwan have shown the fastest growth in
2009.
Equity exposure accounted for 81% of global ETF assets at the end of
2009, followed by fixed income 16%, with most of the remainder
invested in commodities. The NYSE and Nasdaq were dominant in the
trading of ETFs with 83% of the volume of trade (chart 10) in 2009.
They were followed by Deutsche Borse and the London Stock
Exchange.
Private wealth funds The annual World Wealth Report 2010 published
by merrill Lynch capgemini estimated that in 2009 the value of funds
managed on behalf of 10 million high NwIs with over $1m of investable
worldwide assets increased 19% to $39 trillion (chart 11). Following a
24% fall in the previous year, the value of ultra-HNwIs’ assets under
management rose by 22% in 2009. The US, Japan and Germany accounted
for close to 54% of the world’s HNwI population at the end of 2009, down
slightly from the previous year.
The trends in 2009 show that the HNwI population allocated more to
fixed-income instruments and markets outside their home regions than
in previous years, in search of more consistant returns and geographic
diversification. At the end of 2009, equities accounted for 29% of total
global HNwI financial assets (up from 25% in 2008), fixed-income
31% (29%), cash 17% (21%), with the remainder in real estate and
alternative investments. BcG, in its annual report Global Wealth 2010,
estimated that the total value of assets managed on behalf of all investors
increased by 21% in 2009 to $111.5 trillion, following a 12% fall in the
previous year.
Managers of funds The latest available data shows that assets under
management of the world’s largest 500 fund managers declined 23% in
2008 to $53.4 trillion (chart 12). Funds under management of the top 500

are likely to have staged a recovery in 2009 in parallel with the increase in
global assets under management of the fund management industry. US
and UK owned firms held the bulk of the total in 2008 with 42% and 11%
respectively. Swiss, Japanese, German and French firms held between 5%
and 8% each. The proportion of assets managed by managers in
developing countries totalled around 4%. more recent data for managers
of top 300 pension funds show that, assets increased 8.2% during 2009 to

Fund Management 2010
Chart 10 Trading of ETFs
% share, 2009

NYSE Euronext (Europe), 2%
London Stock
10%
Exchange, 2%
Deutsche Borse 3%
Nasdaq OMX

Others
NYSE Euronext (US)

17%
66%

Total: $6,584bn
Source: World Federation of Exchanges

Table 2 ETFs by country
2007

assets
$bn
581
US
50
Germany
40
France
23
UK
34
Japan
18
Canada
13
Hong Kong
8
Switzerland
30
Others
797
Total

2008
assets
$bn
497
63
39
25

27
13
14
11
22
711

---------- 2009 ---------assets Number % share
$bn
assets
listed
665
68
753
96
9
331
54
5
224
47
4
142
25
3
68
29
3
109
21

2
22
18
2
42
77
4
248
1,032
100
1,939

Source: Barclays Global Investors

Chart 11 Private wealth
value of assets, $ trillion

120
100

All investors (BCG)

80
60
40
20

High Net Worth Individuals (MLCG)

1999

2001
2003
2005
2007
2009
2000
2002
2004
2006
2008

Sources: Boston Consulting Group (BCG),
Merrill Lynch Capgemini (MLCG)

5


TheCityUK

Fund Management 2010

$11.3 trillion. This follows at 12.6% fall in the previous year.

Table 3 Largest global investment managers

Independent managers accounted for around a half of total assets of the
largest 500 fund managers in 2008, with the remainder split equally
between insurance companies and banks. The concentration of the
industry has grown over the past decade. The largest 20 fund managers‘
share of top 500 assets increased to 38% in 2008 from 30% a decade

earlier.

assets under management,
end-2008, $bn

There has been a rise in m&A activity in the fund management industry
over the past two years. Asset management firms have reduced the
number of mutual funds and products they offer in a bid to reduce costs
and many funds have been merged or liquidated. A major trend has been
one of bank divestment of asset management subsidiaries. This is partly
due to regulation changes which affect banks by setting limits on
speculative trading with shareholders’ funds as well as restrictions on
owning or investing in hedge funds and private equity funds. Asset
management arms of some banks have also been sold in order to raise
capital. In the coming years the industry may see more traditional asset
managers being bought by alternative players such as hedge funds or
sovereign wealth funds.

1
2
3
4
5
6
7
8
9
10
11
12

13
14
15

Barclays Global Investors1
Allianz Group
State Street Global
Fidelity Investments
AXA Group
BlackRock
Deutsche Bank
Vanguard Group
J.P. Morgan Chase
Capital Group
Bank of New York Mellon
UBS
BNP Paribas
Goldman Sachs Group
ING Group

UK
Germany
US
US
France
US
Germany
US
US
US

US
Switzerland
France
US
Netherlands

1,516
1,462
1,444
1,389
1,383
1,307
1,150
1,145
1,136
975
928
821
810
798
777

acquired by BlackRock in 2009
Source: Pension & Investments / Tower Watson World 500

1

Chart 12 Assets of 500 global managers
% share, 2008

In June 2009 Barclays Global Investors accepted BlackRock’s $13.5bn
offer, making this the second largest asset management deal ever and
creating the world’s largest fund manager. other mergers included the
purchase of Fortis Investments by BNP Paribas, Societe Generale Asset
management by credit Agricole, Sal. oppenheim Jr. & cie. S.c.A. by
Deutsche Bank AG, New Star Asset management by Henderson and
Societe Generale Asset management UK by GLG Partners.
Asset allocation varies considerably around the world. In the UK, US and
Australia (chart 13), the proportion of funds invested in equities has
generally been higher than in other countries although exposure to equities
has been declining for a number of years in favour of more diversification.
more risk appetite in 2009 however encouraged investors to invest more in
equity markets, overseas markets and alternative investments reversing
the previous year’s trend. UK investors held on average of 46% of their
portfolios in equities in 2009 (Table 6), up from 41% in the previous year.
Fixed income allocation on the other hand fell to 36% from 39% over the
year.

Others
US

20%
Switzerland

42%

5%
6%

Japan

8%
Germany

8%

11%

France

UK

Total: $53.4 trillion
Source: P&I/Tower Watson World 500

Chart 13 Asset allocation in major pension
markets
% share, 2009

Institutional investors are likely to remain more cautious in the next couple
of years, allocating less to equity markets than in previous years while
continuing to increase the diversification of their portfolios both in terms of
assets and geographical regions. There has been a shift over the past year
from actively managed funds to passive investing due to high manager
fees and poor performance. This is likely to continue as investors search
for better returns in relation to costs. The use of low-cost passively
managed products such as ETFs is likely to continue growing.

100
80

7%

17%

10%
26%
39%

35%

36%
47%

60

34%

40
58%

20
0

54%
36%

US

Japan

Equities

UK
Bonds

Source: UBS Asset Management

6

19%

40%

42%

Canada

Australia

Other


TheCityUK

Fund Management 2010

UK FUND MANAGeMeNT

Table 4 Funds under management in the UK

UK fund management overview The UK fund management industry
was responsible for £4.1 trillion of funds at the end of 2009 (Table 4,
charts 14 and 15), up 12% during the year and just slightly below the
record amount under management two years earlier. The increase during
the year was primarily a result of the equity markets recovery and an
increase in retail inflows. The recovery in 2009 follows a 12% decline in
the previous year.

£bn
Managed by IMA1 member firms2
Institutional clients
- insurance companies
- corporate pension funds
- other (local authorities, charities, etc.)
Retail clients
Other funds3
- Hedge funds
- Property funds
- Private equity funds
Private client funds
Total funds under management in the UK

The international orientation of the UK’s fund management industry is
reflected in the presence of a broad range of UK and foreign-owned firms,
in the significant investment in overseas securities, and in the
management of overseas clients’ assets. over 30% of funds under
management in the UK, or some £1.4 trillion, are from overseas
(charts 16 and 17). London is central to the UK’s strong international
position. Edinburgh and Glasgow are also important centres for fund
management. There are also significant funds managed by UK fund

managers outside the UK as some firms choose to delegate to overseas
offices the management of UK funds. The ImA estimates that a further
£17.3 trillion is managed globally by asset management firms operating in
the UK.
The UK has been a beneficiary of the globalisation of the fund management
industry. It has however lost market share as a domicile for funds over the
past decade. According to the ImA, the total assets of funds domiciled in
Luxembourg and Dublin were just under twice those domiciled in the UK
ten years ago. In 2009 they were four times as much. over £700bn
in overseas domiciled funds were managed in the UK in 2009. Around 80%
of this was for funds domiciled in Luxembourg and Dublin, and most of the
remainder in the channel Islands and cayman Islands. The proposed
Alternative Investment Fund managers Directive (AIFmD) and reforms of
banking regulation are likely to influence the fund management sector both
in the UK and internationally in the coming years. International concern
has been expressed on the marketing provisions of the AIFmD which could
effectively prevent non-EU funds and managers from accessing the EU
market and thus prevent EU investors from investing outside the EU.
The figure of £4.1bn for assets under management in the UK represents a
conservative estimate. It does not take into account significant funds
managed in the UK for which there are no available estimates such as
funds managed on behalf of sovereign wealth funds as well as private
client funds managed, for example, by family offices.
Client type Institutional clients account for the bulk of funds under
management in the UK. The UK’s strong international position as a fund
management location means that significant institutional funds from
overseas are managed there. Retail and private clients generate the
remaining funds.
Institutional clients in the UK accounted for around two-thirds of funds
under management in 2009. Institutional clients include insurance funds,

pension funds, local authority and charity funds:

2008 2009
2,982 3,360
2,395 2,643
766
761
959
898
865
736
717
587
345
345
190
130
130
135
80
80
402
335
3,662 4,110

Investment Management Association; 2 Excluding private
clients; 3 Figures have been adjusted to take account of
double-counting
Source: IMA, ComPeer, Eurohedge, BVCA, IPD, TheCityUK
estimates

1

Chart 14 Growth of funds under management
in the UK
£ bn

4,500
4,000
3,500

Institut. funds
Retail funds
Private clients
Alter. funds

3,000
2,500
2,000
1,500
1,000
500
0

2002 2003 2004 2005 2006 2007 2008 2009

Source: TheCityUK estimates based on IMA, ONS,
ComPeer, Eurohedge, BVCA and IPD data

Chart 15 Annual net investment by UK
institutional groups1

£bn
50

40
30

Insurance
funds
Unit and investment
trusts

20
10
0
-10
-20
-30

Self-administered
pension funds
2000
2002
2004
2006
2008
2001
2003
2005
2007
2009

Pension funds and insurance companies assets include
investments in unit trusts
Source: ONS
1

-

Insurance funds UK insurance funds totalled £766bn in 2009, slightly
up on the previous year. This represented close to a fifth of funds

7


TheCityUK
Funds under management in Scotland
According to the Scottish Financial Enterprise, funds managed by the Scottish
investment management industry totalled £685bn in 2008. A third of the funds
invested by Scottish managers are long term life assurance funds with a further
third in pension assets. mutual funds and private and charitable funds make up
most of the remainder. Scotland has a traditional strength in pensions and the
management of long-term savings, including open and closed-end mutual funds.

Fund Management 2010
Chart 16 Assets managed in the UK by
domicile
% share of UK funds,
end-2009
Overseas private clients
and alternative funds

Overseas
institutional
and retail
clients
28%

under management in the UK. Around 90% of insurance investment
funds are from long-term insurance policies in which premiums paid
over many years are invested by insurance institutions in order to
meet the liability at maturity. The remainder are from general
insurance policies which have a shorter timescale. Around 80% of
insurance clients’ assets are managed by in-house asset management
subsidiaries, although third-party insurance asset management is on
the increase.
-

-

Pension funds’ assets increased by 7% in 2009 to £959bn. The UK
pension fund industry has been affected in recent years by various
factors such as changes in regulation and accounting standards and
the continuing shift from defined benefit to defined contribution
schemes. Increasing costs have resulted in the closure of many private
sector DB schemes: membership of such open DB schemes has
therefore halved to 2.6m since the early 1990s. contributions to Dc
schemes that have replaced them, at 9% of salary, are only about half
that to DB schemes.
‘Other institutional’ category includes a wide range of clients such
as corporations, asset gatherers, local authority, sovereign wealth
funds, charity, etc. The considerable growth of this category to a

record £865bn in 2009 is a reflection of an increase in international
business from governments, corporate non-pension business, and
central banks.

6%

66%
UK clients

Total: £4,110bn
Source: TheCityUK estimates based on IMA, Compeer,
Eurohedge, ONS, BVCA and IPD data

Chart 17 Assets under management in the UK
by region of group headquarters
% share
100
90
80
70

1%
11%
29%

2%
9%

Other
Europe

42%

North
America

47%

UK

60
50
40
30

59%

20
10

Retail clients held some £717bn in investment funds managed in the UK
in 2009, up nearly a quarter on the previous year largely due to an
increase in retail investment in corporate bond funds and absolute return
funds. The overall figure for investment funds managed in the UK is around
£1 trillion as some products are sold to a range of institutional clients. UK
based investment funds consist of:
-

UK domiciled funds including unit trusts and open ended investment
companies (oEIcs), investment trusts and other retail products. Funds

under management of UK authorised retail funds increased by a third
in 2009 to £481bn, more than making up the 23% decline in the
previous year (chart 18). market movements were responsible for

Advantages of the UK as a centre for fund management
- Highly sophisticated and innovative management styles, techniques and
strategies;
- Skilled labour force and high quality professional and support services;
- wide ranging client base: private and institutional, UK and overseas;
- Highly liquid securities market with the opportunity to trade in large blocks of
shares;
- History of openness with relatively easy access to markets;
- Liberalised operating environment combined with protection against abuses;
- competitive infrastructure in telecommunications services and airline links;
- A proportionate regulatory regime that is effective, fair and focused on the
future, principled and risk based.

8

0

2008

2009

Source: Investment Management Association

Chart 18 UK domiciled retail funds under
management
£bn, funds under

management (bars)

£bn, net
retail sales (line)

500

25

400

20

300

15

200

10

100

5

0

0

2000

2002
2004
2006
2008
2001
2003
2005
2007
2009
Source: Investment Management Association


TheCityUK
three-quarters of the increase in funds, with new money accounting
for the remainder. Funds under management increased further in the
first 7 months of 2010 to £509bn (chart 19).
-

UK managed funds domiciled outside the UK totalled around £500bn
at the end of 2009, including funds such as UcITS and ETFs marketed
to retail investors. A number of firms have significant retail operations
where the assets are largely managed in the UK but with domicile in
Luxembourg, Dublin and other overseas locations.

Private clients are a significant niche in the UK market, with assets of
around £402bn at the end of 2009, up a fifth on the previous year. This
figure includes assets managed by private client firms such as stockbrokers
and private client departments of banks and fund managers. Latest
available data shows that individual ownership of UK shares accounted for
around 10% of total share ownership in 2009, down from 16% in 2000 and

21% in 1990. Although the proportion of equity held by individuals is lower
than in some other countries, the greater UK market capitalisation implies
a more significant penetration of individual share ownership.
Alternative funds include hedge funds, property funds and private
equity funds. Both institutional clients and private clients invest in such
funds. Adjusting for double-counting, alternative funds were the source of
an additional £400bn in 2009 or 10% of UK funds under management. The
UK accounts for around a third of the European property funds market.
London is also Europe’s leading centre for managers of hedge funds. In
2009, over three-quarters of European-based hedge funds’ assets were
managed out of London. Including US hedge funds with an office in Europe,
London probably accounted for 90% of European hedge fund assets. The
UK is Europe’s leading centre for managers of private equity funds with
more than a half of European assets managed in London.
Overseas clients and firms In recent years, the UK has consolidated its
position as one of the most important centres for the management of funds
on behalf of foreign clients. Funds in the UK managed on behalf of
overseas clients totalled around £1.4 trillion in 2009 or a third of the UK
total (chart 16). This was twice the total a decade earlier due to growth in
the client base and consolidation which has been reflected in some large
acquisitions. Institutional and retail clients were the source of around 80%
of overseas clients’ funds, while the remainder came from private clients
and alternative funds.
A significant number of overseas firms are operating in the UK. They
accounted for over a half of UK funds under management in 2009. most of
these funds are managed by firms with North American headquarters
(around three-quarters of the overseas total), with Europe accounting for
the bulk of the remainder (chart 17). The large increase in overseas
companies’ share of UK funds under management in 2009 was largely are
result of a number of divestments by UK retail banks and the BlackRock

Barclays Global Investors deal.
Manager type UK fund management organisations can be classified by
manager type into (chart 20):
-

Fund managers include independent investment managers that are
not linked to any UK-based banking, securities or insurance groups.
They managed a third of UK funds, mainly pensions, at end-2009;

Fund Management 2010
Chart 19 UK investment funds assets under
management
£ bn, assets managed by UK domiciled investment funds

550

500

450

400

350

300

2008

2009

2010

First 7 months of 2010
Source: Investment Management Association

1

Chart 20 Assets managed in the UK by
manager type
% share of UK funds,
end-2009
Other
Pension fund
managers, 3%
14%
Retail banks
4%
Investment
banks

Fund Managers

35%

14%
30%
Insurance companies
Total: £4,110bn

Source: IMA, TheCityUK estimates

Table 5 Largest firms by UK funds under
management
UK assets under management, end-2009, £bn
1
2
3
4
5
6
7
8
9
10

BlackRock Investment Management
Legal & General Investment Management
State Street Global Advisors
M&G Investments
Scottish Widows Investment Partnership
JPMorgan Asset management
Aviva Investors
Standard Life Investments
Schroder Investment Management
Insight Investment Management

£bn
462
306
183

166
142
138
132
108
97
88

Source: Investment Management Association

9


TheCityUK
-

-

-

Fund Management 2010

Insurance companies Insurance companies managed around 30%
of total funds in the UK at the end of 2009. Two-thirds of funds
originated from their clients and most of the remainder from pension
funds. Around four-fifths of insurance companies’ funds are either
managed by their internal investment department or by a separate
subsidiary which might manage funds of external clients as well as
those of its parent company. The remaining funds are outsourced to
third-party asset management firms;

Chart 21 Market share of largest asset
management firms

Retail and investment banks represent banking and securities
groups some of which combine securities and fund management
operations. Retail and investment banks accounted for 4% and 14%
respectively of UK funds at the end of 2009. Investment banks’ funds
predominantly came from pension assets while retail banks’ funds
originated from both insurance and pension assets equally;

30

Self-managed pension funds represent separate legal entities set
up to manage a company’s pension fund assets. Their share has
fallen in recent years as companies’ pension funds are increasingly
managed by third-party fund managers. In 2009, UK self-managed
pension funds held around 3% of assets under management.

Largest UK fund management organisations The UK market is
relatively concentrated at the top end with the largest five fund managers
accounting for 37% of total funds under management in 2009 (up from
31% in 2008), and the top ten managers for 54% (up from 48%)
(chart 21). BlackRock Investment management was the largest firm with
£462bn of funds under management in the UK at the end of 2009. It was
followed by Legal & General and State Street Global Advisors (Table 5).
Asset allocation Fund managers have an array of investment choices
available to them at home and overseas including equities, bonds,
property, and cash. Some 42% of UK institutional funds were invested in
equities at the end of 2009 (Table 6, chart 22), up from 37% in the

previous year. The last ten years have however seen a reduction in
portfolio allocation to equities. As some pension funds are facing a deficit
there is a heightened awareness of risk. Allocation to UK Government
bonds accounted for 39% of assets in 2009, down from 42% in 2008. The
shares of cash and property investments were practically unchanged in
2009 at 11% and 5% respectively. The use of derivatives as a means of
facilitating the transfer of risk and implementing tactical asset allocation
decisions has become a common feature of many fund managers.

% share

Top 5

60

Top 10

50
40

20
10
0

2002

2008

2009

Source: IMA

Chart 22 Asset allocation of UK pension funds
% share

60
UK equities

50
40
Overseas
securities

30
20

Government
bonds

10

Property

0
1980

Cash
1985

1990

1995

2000

2009

Source: UBS Asset Management

Chart 23 Active versus passive management
% share, end-2009

close to 80% of UK institutional assets were managed actively at the end
of 2009. Third-party insurance and in-house insurance had the largest
proportion of active management (around 90%), while corporate pension
funds (around 65%) had
Table 6 Asset allocation in the UK by institutional
the smallest proportion
client type
(chart 23).
CONTribUTiON TO The
UK eCONOMy
Value added while there
is no official figure for the
contribution
of
fund
management to UK GDP,

10

% share of total assets under management,
2009
Corporate Insurance Insurance
(In
(Third
Pension
-House)
-party)
Fund
32.0
Equities
45.1
40.8
51.1
Bonds
36.7
41.7
8.6
Cash
7.0
4.0
6.5
Property
4.5
3.1
1.8
Other
6.8
10.4

Source: IMA

Charity

Total

66.8
10.9
18.2
2.1
2.0

45.8
35.5
9.5
4.5
4.7

Active

Pasive

Corporate pension fund
Local Authority
Charity
Sovereign Wealth Funds
Third-Party Insurance
In-House Insurance
Other Institutional
Total Institutional

0
Source: IMA

20

40

60

80

100


TheCityUK
ThecityUK has made an estimate by applying cost margin indicators to
total funds under management in the UK (charts 24 and 25). According to
this measure, fund management generated around 0.67% of GDP or
£8.7bn in 2009. It was therefore an important component of the financial
sector’s overall contribution of around 10% in that year. Fund
management’s wider contribution to the economy stems from its
promotion of the UK’s capital market and from the links fund managers
have with other financial services providers, such as banks, securities
dealers and information providers.

Fund Management 2010
Chart 24 Fund management industry
profitability
% of funds under
management

(FUM)

Revenue/FUM
Costs/FUM
Profit/FUM

30
25
20

revenue combining ImA’s estimates on revenue margins with data on
revenue for private clients separately estimated by comPeer, ThecityUK
estimates that the total revenue of fund management activities totalled
around £12.8bn in 2009.

15

Profits and costs Fund management margins (profit/revenue) decreased
to 33% in 2009 from 34% in the previous year and 37% in 2007. This was
the second consecutive annual fall and follows six years of growth. The
decline was largely due to revenue falling more quickly than costs despite
the recovery in equity markets (chart 25). Profitability is likely to remain
at lower levels in the coming years with wide variations across institutions
depending on which asset classes they offer. Equity specialists may see a
fall in business whereas fixed income specialists should continue to benefit
from an increase in fixed income investments seen in recent years.

0

10

5
2002 2003 2004 2005 2006 2007 2008 2009

Source: IBM, IMA, TheCityUK estimates

Chart 25 Fund management margins
margin as % of
revenue

40

Fund managers have been reducing costs since the start of 2008. Some
firms have consolidated fragmented back-office operations into centralised
infrastructures while others have outsourced back-office processes such as
investment operations and fund administration. Fund managers are also
looking at other approaches to reduce cost bases such as trimming sales
and client services and reducing the product range on offer. offshoring
services such as transactions processing, IT services and call centres to
offshore locations has been a trend for a number of years now. offshoring
has been more common amongst firms based in the US, UK and Asia, while
firms in France, Italy and Germany have been more reluctant, partly due
to the language barrier.

35
30
25
20
15

1999

2001

2003

2005

2007

2009

Source: IMA, TheCityUK estimates

employment cost cutting measures have also included some staff
reductions, more to middle to lower management and back office staff than
front office employees. The ImA estimated that fund management firms in
the UK directly employed around 24,000 at the end of 2009, down 3%
from the previous year. of this, around a quarter were employed in asset
management, a fifth in marketing and client services, and most of the
remainder in fund accounting and administration, corporate finance and
administration, compliance, legal and audit and transaction processing.
These figures largely exclude private client investment managers and
stockbrokers who are thought to employ an additional 25,000 people. It
should be noted that due to outsourcing of many operations by fund
management firms within the UK, these figures significantly understate
total employment generated by the fund management industry.
Net exports of fund managers totalled £2.9bn in 2009, down over 40%
on the previous two years’ record levels (chart 26). The balance of
payments inflow from portfolio investment by financial institutions, which
will have owed much to the activities of UK fund managers, totalled

£54.5bn in 2009, more than double the level a decade earlier.

Chart 26 Net exports of UK fund managers1
£m
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

1999

2001

2003

2005

2007

2009

Data since 2003 is not entirely comparable with prior
years due to wider sample selection
Source: ONS

1

11


TheCityUK

Fund Management 2010

links to other sources of information:
boston Consulting Group: Global wealth Report, Global
Asset management
www.bcg.com

investment Property Databank: IPD Pan-European
property index
www.ipdindex.co.uk

ComPeer Limited: In Depth Review of wealth managers
www.compeer.co.uk

Merrill Lynch Capgemini: world wealth Report
www.ml.com

european insurance Committee (CeA)
www.cea.eu

OeCD
www.oecd.org

insurance information institute
www.iii.org

Office for National Statistics: Insur. companies’, Pension
Funds’ and Trusts’ Investment, Q4
www.statistics.gov.uk

institutional investor/Watson Wyatt: world’s top 500
fund managers
www.institutionalinvestor.com
www.watsonwyatt.com
investment Company institute
www.ici.org
investment Management Association: Fund
management Survey
www.investmentuk.org

Datafiles
Datafiles in Excel format for all
charts and tables published in this
report can be downloaded from
the Reports section of ThecityUK’s
website www.TheCityUK.com
Sign up for new reports
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Pensions and investments
www.pionline.com
Swissre
www.swissre.com
UbS Asset Management: Pension Fund Indicators,
International Pension Fund Indicators
www.ubs.com

TheCityUK research Centre:
Report author:
Marko Maslakovic, Senior Manager, economic research,
, +44 (0)20 7776 8977
For further information about our work, or to comment on the programme/reports, please
contact:
Leslie Sopp, head of research
, +44 (0)20 7776 8979
ThecityUK, 65a Basinghall Street, Ec2V 5DZ
www.TheCityUK.com
© copyright october 2010, ThecityUK

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