Asset Management now fuels 60% of capital market financing for UK businesses

Monday 25 July 2016

The UK’s £5.5 trillion asset management industry has provided the majority of new equity and bond financing received by British businesses in recent years, facilitating economic growth and stability, job creation and tax revenues.

New research by independent economic consultants Oxera is the first definitive analysis of the asset management industry’s impact on the UK economy since the decline of bank financing that began in 2008*.

It also emphasises the part that asset managers played in funding British business through 2009 during the worst of the financial crisis.

In relation to the debate on long term investment, the report claims that asset managers hold UK equities for around six years on average, based on analysis which adds compelling new evidence to the debate about holding periods and the roles of different types of investor in the UK market.

Moreover, the report highlights the substantial economies of scale that can be achieved through the collectivisation of individual savings, allowing investors access to diversified source of long-term returns across different asset classes, both in the UK and internationally.

It quantifies for the first time the value of these collectivisation services offered in the UK retail funds market, finding that for a £10,000 investment it can cost 7 times more to build a DIY portfolio of shares rather than buying a fund**.

Commenting on the report, Dr Luis Correia da Silva, Partner at Oxera, said:

“Much of the academic and public debate about asset management has focused on the size of the industry, in terms of gross value added or number of employees, or its performance relative to the market average.

“Our report aims to provide an additional perspective, by considering how the activities of professional asset managers contribute both to the efficient allocation of capital and to the efficient pooling of savings on behalf of savers and
investors. In particular, we have looked at the role that asset management plays in channelling new capital to public and private companies.

“This role of asset management is particularly important during periods when bank lending has been reduced, creating a funding gap. Much of that gap has been filled by direct lending and equity investment by asset managers. Based on data collected for this study, it is estimated that the new funds channelled to businesses by asset managers were equivalent to around a third of the value of total UK business investment in 2014.”

Jonathan Lipkin, Director of Public Policy at the Investment Association, said:

“The lifeblood of any economy is the ability to source and raise capital to support companies and other activity such as housing and infrastructure. The Oxera report brings a new perspective and new evidence on the role of the investment management industry in this process. Oxera quantify the scale of funding and highlight how long-term relationships with companies can help to facilitate tangible support, particularly at times of crisis.

“The report also contributes significantly to the debate on holding periods, using an innovative methodology which shows that average holding periods are much longer than commonly supposed”

“As the UK considers its future outside the European Union, the role of financial services – and investment management - needs to be seen both through the optic of its core domestic purpose and its export contribution. In reality, the two are closely linked. Serving clients and companies successfully in the UK allows us also to develop the skill and product sets that have been so successful internationally.”

-ENDS-

Notes to editors

* The report estimates that UK asset managers were responsible for funding 64.6% of new bond issuance in 2013 and 2014, providing £102bn of the total £158bn raised during the period. It also estimates that asset managers funded 39.6% of Initial Public Offerings of shares on the stockmarket in the period, providing £7.6bn of the £19.2bn raised. Finally, asset managers funded 41.2% of further share issues, providing £9.1bn of the £22.1bn of funds raised. Overall, asset managers provided £119bn of the £200bn raised on capital markets in the period, equating to 60% of all financing.

** The impact of the cost of accessing markets is compared between a theoretical self-invested portfolio of 50 or 100 equities and a typical fund in the IA UK All Companies to ask whether a collective fund structure delivers better economies to investors. For a £10,000 investment, the fund structure would cost £468 over five years compared to a theoretical cost of £1,873 for a DIY portfolio of 50 shares and a cost of £3,250 for a DIY portfolio of 100 shares. For a £5,000 investment an average fund would cost £234 over five years versus a cost of £3,215 for a DIY portfolio of 100 shares, meaning it would cost more than 13 times as much to invest outside of a collective structure. Collective structures add additional value above cost savings in terms of diversification benefits, greater expertise and others.

The Executive Summary can be found here.

The Full Report can be found here.

For further information please contact:

John Kenchington
Director of Communications
[email protected]
M 07834 089 332

Linsey White
Head of Media Relations
[email protected]
T 020 7269 4635
M 07508 724 022

Alex Hogan
Press and Digital Media Officer
[email protected]
T 020 7269 4620
M 07508 724 066

About the Investment Association:

• The Investment Association is the trade body that represents UK investment managers who manage over £5.5 trillion on behalf of clients.
• Our purpose is to ensure investment managers are in the best possible position to:
  • Build people’s resilience to financial adversity
  • Help people achieve their financial aspirations
  • Enable people to maintain a decent standard of living as they grow older
  • Contribute to economic growth through the efficient allocation of capital
• The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
• The UK is the second largest investment management centre in the world, after the US and manages 37% of all assets managed in Europe.

About Oxera

Oxera advises companies, policymakers, regulators and lawyers on any economic issue connected with competition, finance or regulation. We have been doing this for more than three decades, gathering deep and wide-ranging knowledge as we expand into new sectors. We have a reputation for credibility and integrity among those we advise, and among key decision-makers, such as policymakers, regulators and courts. Today we have offices in Berlin, Brussels, Oxford and London, and are able to advise our clients worldwide in a highly flexible way, including providing advice in several languages.