Halftime scores – how the investment industry is doing in 2022

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The first six months of 2022 have been challenging for the UK asset and wealth management sectors, with the changing macro environment putting pressure on many businesses in the market.

According to data from Morningstar, UK funds suffered their worst month of outflows in May 2022 since the peak of the pandemic. Investors withdrew £4.3 billion during the month as inflation, rising interest rates and a deteriorating economic outlook sent panic to markets.

Lang Cat Director Mark Polson says these macro concerns have hit asset managers where it hurts; their revenue models based on AUM.

“We’ve seen some of the shine come off the share price of key industry players as flows slow, tech debt begins to be better understood and percentage-based fees take the same hit. that investors take into their wallets – but perhaps there was an irrational exuberance in the first place,” says Polson, who also points out that the 10-plus years since the financial crisis may have lulled some into a false security feeling.

“There is a generation of product builders, designers and analysts who have never experienced significant and sustained headwinds,” he adds. “It will be a time of change for many – business activity will continue, but maybe some of that exuberance will fade a bit.”

Widespread damage

This market malaise has affected even the most established fund groups. Morningstar data from May shows Aviva, BlackRock and Baillie Gifford each saw outflows of £1bn or more. Even the UK’s largest fund, the £23.7bn Fundsmith Equity fund, was not immune and saw £622m in outflows – its largest monthly outflows ever recorded.

These conditions have had an impact on both asset and wealth managers, although AssetCo CEO Campbell Fleming notes, “Wealth managers have arguably been relatively more successful.

“For some, the MPS portfolios they manage have somewhat protected them from more severe market declines. While asset managers, especially those who have profited from growth stocks for many years, have suffered.

NextWealth Managing Director Heather Hopkins agrees and believes the financial advisory aspect of business models makes a difference when sentiment changes: “Financial advisory firms tell me that new business has slowed but it’s maintain their existing relationships, but again, income will fall if assets decline.

“For example, the appetite to buy financial advisory firms remains strong – and with good reason. Assets are stable and recurring income streams are strong, making them attractive. »

See also: Vanguard Lifestrategy funds rake in £1.9bn despite weaker performance

Stock price hits

The fallout has been clear on share prices, with many big names in assets and wealth in the UK market having underperformed the stock market in 2022.

According to FE Fundinfo, the FTSE All Share lost -4.82% in the six months to June 20, 2022. During this period, the share prices of AJ Bell, St James Place and Hargreaves Lansdown lost -27, 36%, -31.61% and -41.48% respectively. Integrafin, the holding company of the investment platform Transact, lost -55.78% over this period.

Listed fund groups did not fare much better with shares of Jupiter (-39.94%), Abrdn (-30.79%), Schroders (-24.04%) and Premier Miton (36.83 %) also in the red over the period. Liontrust has suffered a particularly sharp decline, with shares down 55.14% year-to-date.

However, Man Group and M&G are outliers, with the former up 8.36% and the latter down just 1.63%.

On the wealth management side, Brewin Dolphin is also an anomaly, with DFM’s share price rising from £3.70 to £5.08 over the same period. Boasting buy ratings from many analysts, Brewin Dolphin is currently being acquired by Royal Bank of Canada – a move that has done instantly the latter is the third largest wealth manager by AUM in the UK and Ireland.

The performance of wealth management firms may depend on how these firms have marketed their proposition to clients. Redington chief wealth officer Nick Blake says the bold arguments of corporate wealth managers can come back to haunt them.

“It’s still true that the implicit promise of many companies is ‘we’ll beat the market for you’…and their clients become uncomfortable when that demonstrably doesn’t happen,” says Blake, unlike wealth management firms. who prepared their clients for years like 2022 in advance. “Typically, when markets are in trouble, the phone rings a lot less in this type of heritage practice.”

More of the same

With the end in sight of the current economic headwinds, UK asset and wealth managers could likely continue to face a challenging operating environment.

These pressures will impact companies differently, and those whose scale matches their size may be in a better position, says Fleming, who expects to see more M&A activity in 2022 (CEO says own business remains open to both organic and inorganic growth).

“It’s the companies in the middle that are under the greatest pressure,” he says. “Medium-sized players are slow to adjust their business models and are more likely to be burdened with outdated IT systems. Perhaps more importantly, their product lines are outdated.

A recent note from Numis highlighted opportunities for consolidation in the UK, with data showing the top 10 players hold 36% market share and the top 25 56%. BlackRock – the world’s largest asset manager – only has a 9% share.

Pressures on assets under management could continue, and Blake expects the scale to go through more deals this year, as evidenced by the trend of asset managers buying platforms and management companies from inheritance.

“It remains to be seen whether valuations are dictated by a competitive market and/or to what extent falling asset values ​​– and the future earnings that flow from them – reduce valuations,” he says. “One thing is certain: the adage ‘Distribution is king’ still holds true.”

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