UK fund assets £10 trillion; Scots firms manage 19%

Assets under management held by the 250 member firms of the UK’s Investment Association (IA) reached a milestone £10 trillion in 2021, according to the organization’s latest annual Investment Management Survey.

The IA said that while the 6% year-on-year increase was a mark of the resilience of the industry, it is below the average growth rate seen over the last 10 years.

In 2021, assets managed from Scotland rose slightly to £700 billion, equivalent to 7% of the UK’s total assets under management.

“Much of the portfolio management capability of Scottish headquartered firms is based in London, which is why we see a difference between the 7% of assets managed in Scotland versus the 19% of assets managed by Scottish headquartered firms …” said the report.

The survey added: “There are two primary city hubs in the UK for investment management; London is by far the largest both in terms of headcount and level of assets managed within the city, with Edinburgh coming in as the second largest hub.

“In 2021, assets managed from Scotland reached £700 billion, a small increase on the previous year.

“This is equivalent to 7% of total AUM. The longer-term trend observed over the past decade has been an overall decrease in the proportion of assets managed in Scotland.

“In 2011, the proportion of Scotland-managed assets was 12% of UK AUM, almost double the level observed in 2021.

“This is a reflection of merger and acquisition activity among Scottish firms which has caused growth to stall, as well as the faster relative growth in London and elsewhere in the UK, rather than a fall in Scottish managed assets in absolute terms …

“Over ten years, we see a ten-percentage point increase in the proportion of firms headquartered in London.

“The share of Scotland headquartered firms has fallen from 28% in 2011 to 19% in 2021 and the share of other regional locations has remained relatively unchanged, fluctuating between 2 and 3%.”

The survey found that the industry employed 122,000 people in the UK at the end of 2021. Three quarters of those people work in London, while 19% work in Scotland and 5% work in the rest of the UK.

The IA added: “The UK continues to be a leading centre for investment management, second only to the United States internationally.

“At the end of 2021, total assets managed for overseas clients had risen to £4.6 trillion from £4.2 trillion in 2020.

“This represents 46% of total assets under management, a nine percentage point increase since 2016, suggesting the UK is becoming increasingly more attractive for overseas investors.

“The growth of funds under management with responsible investment criteria was again a standout trend in 2021, rising by £34 billion to £89 billion by the end of the year – a 62% increase.

“While customers continued to be attracted to sustainable investing, they also continued to turn away from UK equities, as part of a longer-term shift to more globally diversified portfolios.

“Funds under management in UK equities have fallen to 13% in 2021, down by 25 percentage points since 2006.

“Assets under management show a similar picture, largely driven this year by a surge in North American equities which, for the first time, accounted for the largest share of total equity assets at 30%.

“The growth of indexing strategies slowed in 2021, with assets in indexing strategies reaching 32% of total assets in 2021 – a 1% increase year-on-year following a 10% increase over the decade since 2011.

“In the retail fund market, actively managed funds outsold index trackers for the first year since 2017 with inflows of £25 billion compared to sales to index tracking funds of £18 billion.

“In 2021, institutional clients, such as pension funds, continued to account for the majority of investment management industry clients, responsible for 77% of assets under management in the UK.

“However, 2021 also saw the acceleration in assets managed on behalf of retail clients – from 20% in 2020 to 22% in 2021. This small increase comes after a decade of very little movement.”

Investment Association CEO Chris Cummings said: “Reaching the milestone £10 trillion assets under management is a testament to the strength and resilience of the UK investment management industry during a challenging period.

“Responsible investment has been a key feature of this growth over the last two years, as investors increasingly look to marry their financial and their sustainability goals.

“UK investment management also continues to be a globally competitive industry, attracting more and more overseas clients, who are drawn to the UK as a centre of excellence for fund management.

“However, with the war in Ukraine, rising inflation and energy prices creating very turbulent market conditions so far in 2022, we are unlikely to see the growth in assets under management continue at the same pace as we have in recent years.

“As people balance the very real competing demands of saving for their future and the rising costs of their day-to-day living, the role of investment managers to guide savers to help reach their financial goals, will be more crucial than ever.”