Margins for UK and Ireland managers fall a third
UK/IRELAND – Fund managers in the UK and Ireland saw overall profit margins fall from 33% to 23% in 2001 following the shift from defined benefit to defined contribution and poor growth of the retail sector says PricewaterhouseCoopers’ latest annual survey of fund managers in the UK and Ireland.
The research says smaller fund management groups are adapting better to the developments on the market than their larger counterparts in both the institutional and retail sectors.
PWC claims institutional firms running less than £23bn (€36bn) managed to control their costs more effectively than larger players whose costs rose 9%.
It found that, in the retail sector, those with less than £2.5bn (€3.9bn) maintained stronger pricing and saw their revenues fall by 4% compared with 29% for their larger counterparts.
The survey suggests the switch to DC by UK pension funds will mean the institutional market will start to behave more like the retail market as consumers have more control over the cash flows of their pension schemes. PWC claims this will have an adverse impact on profit levels for fund managers.
In addition, profits will also become more volatile as maturing DB schemes continue to increase swap equities for fixed income.
On a more positive note, the research says the trend within the fund management community to outsource parts of its business, such as performance measurement and securities processing, is healthy since it allows managers to focus on their core skills.
Ian Hards, a partner at PWC says larger players will need to simplify their business and concentrate on those areas where they have a competitive edge if they are to maintain their dominance. He says larger players have been reacting to market developments by making incremental changes rather than looking at the underlying structure of their business.
Fellow partner Pars Purewal explains: “the larger players have basically been tinkering around the edges of their business when they need to take a long hard look at what areas are the most profitable. They need to restructure their operations and throw in the towel in those areas where their profit levels are suffering the most.”
The survey is the fourteenth PWC annual survey of the fund management industry in the UK and Ireland. The results are based on the views of 24 firms that manage a combined £1,100bn (€1,700bn).