The UK asset management industry is estimated to have provided some 60% of the financing raised by UK companies in the capital markets in 2013-14, according to a study commissioned by the Investment Association (IA).
The study, carried out by the consultancy Oxera, looked into the role of asset managers in channelling money to public and private companies.
It estimates UK asset managers were responsible for funding 65% of bonds issued by corporates in 2013-14, and some 40% of the cash raised by share issues on the stock market.
“Overall,” Oxera said in a statement, “asset managers provided £119bn of the £200bn raised on capital markets in the period, equating to 60% of all financing.”
Luis Correia da Silva, partner at Oxera, said the report differed from much research because of its focus on how asset managers contributed to the efficient allocation of capital, especially on their role in distributing capital to companies.
“This role of asset management is particularly important during periods when bank lending has been reduced, creating a funding gap,” he said.
“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 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.”
The report also claims asset managers hold UK equities for around six years on average.
This, said Jonathan Lipkin, director of public policy at the IA, is “much longer than commonly supposed”.
The asset management industry was included in an action plan launched by the association in March to boost long-term investment in the UK economy.
In other news, credit ratings agency Moody’s has said traditional active asset management “will likely have to shrink substantially”, and will probably lose market share to exchange-traded funds (ETFs) and smart beta.
It said the shift into lower-fee passive investment products since 2007 was not temporary, and that the share of passive investing was likely to grow further.
It made the comments in a global asset management sector note, although the market share figures it cited were for the US mutual fund industry.
According to Moody’s, the shift into passive investing is fuelled by factors such as that “the vast majority of active managers, and the industry in aggregate, consistently underperform passive, indexed investments”.
The high fees of actively management funds “are also more noticeable and impactful to investors” in the prevailing low-yield environment, it said.
Regulation on transparency of costs and disclosure of fees is another driver, according to the agency.
Traditional active asset managers’ revenues have decreased as a result of the shift to passive, it said, adding that some traditional active managers were trying to adjust their business models in response.
“A number of active managers that had not previously offered passive products have recently altered their strategies and either made acquisitions or created new products to address the shift from active to passive investing,” said Moody’s.
“Much of this investment has been in ETFs and smart beta, which are likely to take share from traditional active management.”
However, because quantitative investing is also scalable, “the large number of smart beta managers is also likely to shrink to a few surviving winners managing large amounts of capital”.