1、INVESTMENT MANAGEMENT IN THE UK 2022-2023The Investment Association Annual SurveyOctober 20232CONTENT ENQUIRIESinvestmentassociation.surveytheia.org CONTRIBUTORSEvan Grace FrenkelJonathan LipkinRichard HaleSarah ShehabiThe Investment Association(IA)Camomile Court,23 Camomile Street,London,EC3A 7LL w

2、ww.theia.orgInvAssocOctober 2023 The IA(2023).All rights reserved.No reproduction without permission of the IA.3CONTENTSIndex of Charts,Figures and Tables 5About the Survey 8Survey Foreword 10Executive Summary 121.UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE 14 Role of Investment Management 16

3、Industry size and scale 17 The UK in Global Context 23 Maintaining industry competitiveness 282.THREE KEY THEMES THAT WILL SHAPE THE UK INDUSTRY 34 Accelerating technological advance 36 Evolution of responsible and sustainable investment 40 Cultural shifts and the importance of the EDI process 433.T

4、RENDS IN CLIENT ASSETS AND ALLOCATION 46 Client types 48 Trends in asset allocation 50 Segregated vs.pooled 53 Indexing strategies 53 Investment in the UK economy 56 Ongoing focus on liquidity management 584.UK INSTITUTIONAL MARKET 60 Market overview 61 Evolution of the UK pensions market 62 Trends

5、in the third party institutional market 65 INVESTMENT MANAGEMENT SURVEY 2022-23|CONTENTSTHE INVESTMENT ASSOCIATION45.UK RETAIL MARKET 74 UK investor funds under management 76 Responsible Investment funds 79 Increasing importance of indexing funds 81 Asset allocation 83 Funds of funds 89 Distribution

6、 channels 90 Holding period 90 The UK in the context of the European funds market 916.OPERATIONAL AND STRUCTURAL EVOLUTION 93 Industry profitability Revenue and costs 94 Employment in the Investment Management Industry 95 Industry firm size 99 Investment manager ownership 103APPENDICES 1.Summary of

7、assets under management in the UK 106 2.Summary of data from the UK institutional market 108 3.Notable M&A deals in the UK investment management sector(2009-June 2022)110 4.Definitions 120 5.Survey and interview participants 1225INVESTMENT MANAGEMENT SURVEY 2022-23|INDEX OF CHARTS,FIGURES AND TABLES

8、INDEX OF CHARTS,FIGURES AND TABLESCHARTSChart 1:Total assets under management in the UK and in UK funds(2007-2022)18Chart 2:Total returns on selected indices in 2022 20Chart 3:UK-managed assets by UK regional headquarter(2012-2022)21Chart 4:Change in proportion of UK and overseas clients(2012-2022)2

9、5Chart 5:Overseas client assets by region(2017-2022)26Chart 6:Proportion of assets managed in UK and overseas funds(2012-2022)26Chart 7:Industry export earnings and relation to UK services exports(1996-2021)27Chart 8:Number of UK listed companies(1975-2022)32Chart 9:Assets managed in the UK by clien

10、t type 2022 48Chart 10:Assets managed in the UK by client type(2012-2022)49Chart 11:Overall asset allocation of UK-managed assets(2007-2022)50Chart 12:Allocation of UK-managed equities by region(2012-2022)51Chart 13:Allocation of UK-managed fixed income assets by type and region(2012-2022)52Chart 14

11、:Segregated vs.pooled investment(2012-2022)53Chart 15:Indexing strategies as a proportion of total UK assets under management(2012-2022)53Chart 16:ETF assets under management by region of domicile(2012-2022)54Chart 17:Growth in sustainable ETFs(Q1 2020 Q4 2022)55Chart 18:Active ETF assets under mana

12、gement(2012-2022)55Chart 19:UK Institutional market by client type(2022)61Chart 20:UK Institutional market by client type(2012-2022)62Chart 21:Pension participation for private sector jobs(2011-2021)64Chart 22:Third-party UK institutional client market by client type in 2022 65Chart 23:UK third-part

13、y institutional mandates including LDI in 2022 65Chart 24:Gilt yields suffer unprecedented spike following September Fiscal Event 68Chart 25:LDI resilience increases significantly in the aftermath of the gilt market shock 68Chart 26:Overall,DB pension scheme universe funding position much better as

14、a result of 68 interest rate regime changeChart 27:UK third-party institutional client mandates:Multi-asset vs.Specialist in 2022 69Chart 28:UK third-party institutional client mandates:Multi-asset vs.Specialist(2012-2022)69Chart 29:Specialist mandate breakdown by asset class(2012-2022)70Chart 30:Sp

15、ecialist mandate breakdown by asset class in 2022 71Chart 31:UK DB fund asset allocation(2000-2022)71Chart 32:UK DC asset allocation,20 years prior to retirement and at retirement in 2022 72Chart 33:Specialist mandate breakdown by asset class among UK pension funds in 2022 72Chart 34:Active and inde

16、x third-party mandates by client type in 2022(sample-adjusted)73Chart 35:Segregated and pooled mandates among third-party pension funds(2022)73Chart 36:Total industry funds under management(2007-2022)76Chart 37:Drivers of industry growth(1980-2022)76Chart 38:Total net retail sales and net retail sal

17、es as a percentage of FUM(2007-2022)77Chart 39:Evolution of Bank of England base rate and of net retail sales as proportion of FUM(1992-2022)78Chart 40:Quarterly net retail sales and Bank of England base rate(Q1 2007-Q1 2023)78Chart 41:Responsible Investment FUM(Q1 2020-Q4 2022)79THE INVESTMENT ASSO

18、CIATION6Chart 42:Responsible investment FUM by asset class and component as of December 2022 80Chart 43:Net retail sales to Responsible Investment and Conventional funds(Q1 2020 Q4 2022)80Chart 44:Responsible Investment net retail sales by asset class(Q1 2020 Q4 2022)81Chart 45:Active funds and trac

19、ker funds as a proportion of total FUM(2007-2022)81Chart 46:Net retail sales to active and index tracking funds(2012-2022)82Chart 47:Net retail sales of tracker funds by index investment type(2012-2022)82Chart 48:FUM by asset class(2007-2022)83Chart 49:Net retail sales to Equity Growth vs.Equity Inc

20、ome(2002-2022)84Chart 50:Equity funds,net retail sales by region(2007-2022)84Chart 51:Net retail sales to fixed income funds(2007-2022)86Chart 52:Net retail sales by investor objective(2007-2022)87Chart 53:Net retail sales to outcome and allocation sectors(2017-2022)87Chart 54:Property fund FUM and

21、net retail sales(2007-2022)88Chart 55:Net retail sales by type of property fund(2012-2022)88Chart 56:Fund of funds,FUM and NRS(2007-2022)89Chart 57:Net retail sales by distribution channel(2013-2022)90Chart 58:Retail investor average holding periods(20072022)90Chart 59:UK and overseas investors in U

22、K domiciled funds(2012-2022)91Chart 60:UK investors by domicile(2012-2022)92Chart 61:Net retail sales by fund type(2012-2022)92Chart 62:Industry net revenue and profitability(2019-2022)94Chart 63:Distribution of investment manager profitability in 2022 94Chart 64:Industry headcount estimates vs.UK a

23、ssets under management(2007-2022)96Chart 65:Direct employment by staff segment(2017-2022)97Chart 66:Members of the Investment Association ranked by UK assets under management(June 2022)99Chart 67:Market share of largest firms by UK assets under management vs.HHI(June 2012 June 2022)101Chart 68:Top t

24、en firms by UK-managed and global assets under management in 2022 101Chart 69:Breakdown of UK assets under management by region of parent group HQ(2012-2022)103Chart 70:Breakdown of UK assets under management by parent type(2012-2022)104INVESTMENT MANAGEMENT SURVEY 2022-23|INDEX OF CHARTS,FIGURES AN

25、D TABLES7FIGURESFigure 1:The role of investment managers in channelling savings to investments 16Figure 2:Who are the members of the Investment Association?17Figure 3:Wider UK investment management industry in 2022 22Figure 4:Assets under management in European countries(December 2021)23Figure 5:Fou

26、r measures of a global industry in 2022 24Figure 6:Assets managed on behalf of overseas clients in 2022 25Figure 7:IA member holdings in UK asset classes in 2022 56Figure 8:Infrastructure investment by IA members in 2022 56Figure 9:Selection of UK infrastructure investment facilitated by IA members

27、in 2021 57Figure 10:Overview of the UKs pension landscape in 2022 63Figure 11:The Gild Market Crisis in Three Charts 68Figure 12:Map of directly and indirectly employed staff across the UK in 2022 95TABLESTable 1:Global assets under management in 2022 23Table 2:Proportion of IA members investing by

28、asset class in 2022 50Table 3:Distribution of staff by activity in 2022 97Table 4:Distribution of investment management jobs by region in 2022 98Table 5:Assets managed in the UK by IA members by firm size(2017-2022)1008ABOUT THE SURVEYTHE SURVEY CAPTURES INVESTMENT MANAGEMENT UNDERTAKEN BY MEMBERS O

29、F THE INVESTMENT ASSOCIATION(IA)ON BEHALF OF DOMESTIC AND OVERSEAS CLIENTS.UNLESS OTHERWISE SPECIFIED,ALL REFERENCES TO UK ASSETS UNDER MANAGEMENT REFER TO ASSETS,WHEREVER DOMICILED,WHERE THE DAY-TO-DAY MANAGEMENT IS UNDERTAKEN BY INDIVIDUALS BASED IN THE UK.THE ASSET VALUE IS STATED AS AT DECEMBER

30、2022.THE FINDINGS ARE BASED ON:Questionnaire responses from 72 IA member firms,who between them manage 8.8 trillion in the UK(85%of total UK assets under management by the entire IA membership base).Other data provided to the IA by member firms.Data provided by third party organisations where specif

31、ied.Publicly available information from external sources where relevant.Interviews with senior personnel from IA member firms.THE IA WOULD LIKE TO EXPRESS ITS GRATITUDE TO MEMBER FIRMS WHO PROVIDED DETAILED QUESTIONNAIRE INFORMATION AND TO THOSE WHO TOOK PART IN THE INTERVIEWS.THE SURVEY IS IN SIX C

32、HAPTERS:1.UK investment management industry:a global centre2.Three key themes that will shape the UK industry3.Trends in client assets and allocation4.UK institutional client market5.UK retail funds market6.Operational and structural evolution THERE ARE ALSO FIVE APPENDICES:1.Summary of assets under

33、 management in the UK2.Summary of data from the UK institutional market3.Notable M&A deals in the UK investment management sector(2009 August 2023)4.Definitions5.Survey respondents and interview participantsA NUMBER OF GENERAL POINTS SHOULD BE NOTED:Not all respondents were able to provide a respons

34、e to all questions and therefore the response rate differs across questions.The Survey has been designed with comparability to previous years in mind.However,even where firms replied in both years,some may have responded to a question in one year but not in the other or vice versa.Where meaningful c

35、omparisons were possible,they have been made.Numbers in the charts and tables are presented in the clearest possible manner for the reader.At times this may mean that numbers do not add to 100%,or do not sum to the total presented,due to rounding.THE INVESTMENT ASSOCIATION98.8TRNMANAGED BY IA MEMBER

36、S IN THE UKWORLDS LEADING INTERNATIONAL INVESTMENT HUB 91BILLION IN RESPONSIBLE INVESTMENT FUNDS 4.2TRILLION MANAGED FOR OVERSEAS INVESTORS 45 BILLIONINVESTED IN UK INFRASTRUCTURE126,400 JOBS ACROSS THE INDUSTRY 500BILLION MANAGED IN SCOTLAND INVESTMENT MANAGERS OWN 32%OF UK PLC 1.4TRILLION INVESTED

37、 IN THE UK ECONOMY INVESTMENT MANAGEMENT SURVEY 2022-23|ABOUT THE SURVEY10THE INVESTMENT ASSOCIATIONSURVEY FOREWORDDURING EACH OF THE SEVEN YEARS THAT I HAVE BEEN IA CHIEF EXECUTIVE,THIS REPORT HAS PROVIDED AN AUTHORITATIVE OVERVIEW OF A UK INVESTMENT INDUSTRY THAT IS CONTINUALLY EVOLVING TO SERVE C

38、USTOMER NEEDS INTERNATIONALLY.THAT IT REMAINS A GLOBAL POWERHOUSE THROUGH 2022 IS A SOURCE OF PRIDE BUT NEVER COMPLACENCY.PARTICULARLY SO BECAUSE SO MUCH APPEARS TO BE IN FLUX,PRESENTING MANY CHALLENGES BUT ALSO SIGNIFICANT OPPORTUNITIES.Our exploration of the delivery environment through the 2022-2

39、3 report is based on different aspects of three key themes:Adaptation,Resilience and Transformation.Taken together,they represent what we see as the biggest change agenda the industry has ever faced as a range of commercial,economic,environmental,social,political,regulatory,security and technologica

40、l factors combine to impact firms in the UK and globally.The central economic point of change is that the monetary policy environment which came to define global market behaviour for almost 15 years has come to what is at least a moment of inflection,and possibly a more permanent turning point.Along

41、side the human cost of the terrible conflict in Ukraine,we also continue to digest the wider implications of the most significant hot war in Europe in decades,itself coming in the aftermath of a major global pandemic whose impact is still being felt.The inflection point can be seen first and foremos

42、t in the change in the value of assets under management in the UK,which remains at a historically high level of 8.8 trillion,but down 12%year-on-year,reflecting a year in markets which saw unusual correlation in the downward direction of travel for both global equities and bonds.Adaptation and resil

43、ience are therefore themes that characterise the experience of 2022 for both retail and institutional customers.Indeed,UK gilt market turbulence created an acute and highly unusual set of difficulties for UK pension scheme investment and for wider UK financial stability through September to October.

44、For the UK,the post-Brexit adaptation to a new relationship with the EU and with multiple global and regional partners has added an additional layer of complexity to the operating environment for investment managers.As we report in our first chapter,a range of metrics that otherwise look clearly gre

45、en for our ongoing success as an industry internationally,flash amber and turn red on some aspects of the outlook for the UK going forward.These relate primarily to aspects of the current policy and regulatory environment and in chapter 2 we set out views on the blueprint emerging for how the direct

46、ion of travel can be improved from here.In many ways,the disruption in geo-politics and the shift in the market cycle serves to re-enforce the areas of strategic importance that we have identified as an 11INVESTMENT MANAGEMENT SURVEY 2022-23|SURVEY FOREWORDthe investment management industry for the

47、coming decade,both in the UK and internationally.The analysis in our report underscores the progress made to date on EDI,and the work still needed to further progress and embed EDI considerations more firmly at firm level.Alongside these major trends,this years report contains a wealth of data point

48、s about many different aspects of the UK industry.While we cannot predict the direction of travel from here,we hope that the analysis will provide you with an interesting and authoritative overview of the key areas and developments within them.There is much that will be keeping the industry and the

49、IA very busy in the coming months and years in order to ensure a world-class industry which continues to deliver for its customers in the UK and globally.Chris Cummings CEO industry.Our commitment to investing responsibly and sustainably and to maintaining the UKs attractiveness as a global investme

50、nt management centre remains strong.But it does require some careful re-calibration:in the sphere of sustainable investing,our attitudes to defence have evolved following the Russia/Ukraine war and our notions of a socially responsible company are becoming more important.More broadly,some of the old

51、 links of globalisation are breaking,causing new diplomatic and trading relationships to be forged.Amidst this,we shouldnt lose sight of our strength as a global centre and we must continue to make it easier for the best and the brightest in global investment talent to come to work here.At the heart

52、 of that blueprint lies the scope for transformation that technology increasingly brings,alongside a reset in how regulators and the industry work together.This time last year,we were focused on tokenisation as a defining new theme.Twelve months later,Artificial Intelligence has shot to the top of t

53、he agenda.Wherever we are on the hype curve at this point,it is hard to ignore the extraordinary potential.Many firms are taking action now to transform their operating models and even their conception of what an investment fund looks like in a future that may be characterised by exponential technol

54、ogy-driven change.Sustainable and Responsible Investment(SRI)is a second particular area of focus for this year as the delivery environment becomes more challenging as a result of a range of political,economic,societal and regulatory pressures.Climate change continues to be a dominant theme around w

55、hich SRI is organised,and acts as a significant tail-wind on the basis of a broad,if sometimes contested,consensus of the need for increasingly urgent action.However,as recessionary and cost-of-living pressures grow,the UK is starting to see a more divisive conversation around the cost and timing of

56、 net zero transition.The industry is extremely aware of the need to balance leadership in this most critical of areas with the realities and imperatives of a fiduciary business model.Transformation is also of course about culture,and the Equity,Diversity and Inclusion(EDI)journey that the industry i

57、s on features again in our report,reflecting operational priorities.In the view of the Investment Association,the combination of cultural and technological change has the potential to turbo-charge IA MEMBERS ARE RESPONSIBLE FOR 8.8TRN FOR UK AND OVERSEAS CLIENTS AS OF THE END OF 202212THE INVESTMENT

58、 ASSOCIATIONEXECUTIVE SUMMARYUK INVESTMENT MANAGEMENT INDUSTRY:ADAPTATION TO A NEW ENVIRONMENT Total assets under management(AUM)managed by IA members fell to 8.8 trillion at the end of 2022,a 12%decrease on the previous year.After strong growth in AUM for the past decade,a broad-based market correc

59、tion has been the main driver of this fall,reflecting monetary policy regime change,hot war in Europe and a range of economic,political and security uncertainties internationally.The UK maintains its position as a leading international investment management centre.This is measured on four metrics:ov

60、erseas clients(48%of total AUM),global investment(78%of shares and bonds invested in overseas markets),internationally-headquartered firms(60%of total AUM)and economic contribution(5.5%of total net services exports).Despite the continuing strength of the industrys international position,there is ris

61、ing concern across the industry about threats to competitiveness and the potential knock-on effect for the domestic market.We cover six themes:stimulating innovation;facilitating cross-border business;focusing on the cost of doing business;modernising the regulatory process;calibrating risk appropri

62、ately;and targeting regulation effectively.THREE KEY AREAS FOR TRANSFORMATION AHEAD With innovation-driven competitiveness and regulatory reform as overarching themes,there are three specific areas that are defining the evolution of the industrys relationship with the wider economy and society.1.Tec

63、hnology:In investment management,as elsewhere in the economy,technological development is increasingly focused on Artificial Intelligence(AI)and tokenisation.While AI has been the prevailing theme of 2023,the potential for tokenisation to transform the operational backbone of the fund and wider capi

64、tal markets remains significant.2.Sustainability:Firms are of the view that the Sustainable and Responsible Investment(SRI)agenda will remain a defining one for the industry,particularly with respect to the urgency of tackling climate change.We set out a series of factors that are contributing to a

65、challenging delivery environment for firms both domestically and internationally.3.Culture:At the heart of the cultural transformation agenda lies the increasing focus across the industry on Equity,Diversity and Inclusion.We see parallels with sustainability in that there are significant business ri

66、sks for firms of not getting this right sitting alongside the wider imperative to better reflect and support the society in which they operate.TRENDS IN CLIENT ASSETS AND ALLOCATION The share of assets managed on behalf of retail clients grew again from 22%to 25%.While the Covid-19 pandemic appears

67、to have increased retail participation and total retail AUM through 2020-2021,a further year-on-year increase through 2022 may be more the result of differential asset class returns across client groups.Through 2022,the proportion of assets invested in equities was broadly unchanged in part due to t

68、he relatively strong performance of UK equities compared to global peers.The share of fixed income assets fell from 30%to 28%as fixed income assets especially domestic bonds fell more sharply than the equity markets.Global diversification continues to be a key theme in asset allocation.In 2022,60%of

69、 fixed income assets were held in overseas bonds compared with 55%last year and over a third(37%)of holdings ten years ago.UK equity holdings continue to decline as a proportion of total equities,falling to 22%.North American equities have significantly surpassed UK equities as the largest region fo

70、r equities managed from the UK(32%from 30%in 2021).Indexing strategies now account for a third of total AUM,a one percentage point increase from 2021 and a twelve-percentage point increase over the past decade.Exchange Traded Funds have been an important contributor to the growth of indexing strateg

71、ies in recent years.INVESTMENT MANAGEMENT SURVEY 2022-23|EXECUTIVE SUMMARY13 Investment managers continue to make a major contribution to the domestic economy,managing some 4.6 trillion for UK customers,both retail and institutional.They hold an estimated 1.4 trillion in UK shares,bonds,property and

72、 infrastructure.UK INSTITUTIONAL CLIENT MARKET IA members now manage 3.9 trillion globally on behalf of UK based institutional clients,which represents a fall of 16%from a year earlier,driven by sharp falls in UK bond markets.Third-party AUM stood at 3.3 trillion,once in-house mandates are excluded

73、from the institutional data,down from 4.0 trillion in 2021.Pension funds remain the largest client type,accounting for 63%of third-party assets though this is substantially lower than the 69%reported in 2021.Total assets in liability driven investment(LDI)strategies fell 28%on a matched basis to an

74、estimated 1.17 trillion,after an exceptionally turbulent period in the UK gilt market.When LDI assets are excluded,specialist mandates continue to be the predominant approach in the third-party institutional market,accounting for 80%of total assets.Within specialist third party mandates,the proporti

75、on of assets in equity mandates decreased by one-percentage point over the year(to 38%)despite the weak equity performance environment.The share of assets in fixed income mandates fell to 32%,a four-percentage point fall on the previous year and its lowest level in the past decade.UK RETAIL FUNDS MA

76、RKET UK investor funds under management(FUM)fell 14%to 1.37 trillion over 2022.After the second highest inflows on record in 2021,we saw the first year ever to record a calendar outflow,with net redemptions of 25.7 billion.Rising inflation and the changing monetary environment played a major role in

77、 the dislocation,which was felt strongly across both equity and fixed income markets.The central driver of the fall in FUM was returns(77%of total fall)rather than redemptions.SRI was not immune from the correction,although robust in comparison with the wider market.FUM growth remained marginally po

78、sitive and sales to responsible investment funds remained resilient at 5.4 billion over the year,down from 15.9 billion in 2021.2022 saw a sharp reversal of the resurgence in sales to actively managed funds.Net retail outflows of actively managed funds were a record 36.6 billion,amidst robust sales

79、to trackers of 11.0 billion.At the level of total FUM,the share of fixed income(17.4%)fell back to the lowest level in fifteen years.UK equities continued what has become an extraordinary decline as a proportion of total FUM to reach a new low of 12.8%,after accelerating falls since 2016.OPERATIONAL

80、 AND STRUCTURAL ISSUES Total industry revenue after commission stood at 23.3 billion in 2022 while costs stood at 18.3 billion.Operating profitability dropped to 22%,reflecting faster drops in revenue than in costs.As of 2022,the UK investment management industry supports approximately 126,400 jobs,

81、of which approximately 46,200 people are directly employed,a 3%increase on the previous year.We estimate that a further 80,200 people are indirectly employed in supporting industries.Despite accelerating M&A activity,the UK investment management industry remains relatively unconcentrated.Total asset

82、s managed by the top five and the top ten firms stood at 43%and 58%respectively.UK SECTOR SIZE AND SCALE The value of assets under management(AUM)managed by members of the Investment Association(IA)stood at 8.8 trillion in 2022.This is a 12%decrease on 10.0 trillion recorded in the previous year,mai

83、nly attributed to asset depreciation,with broad-based declines in equities and bonds internationally.The fall in AUM is the first since 2008 and comes after a 9%compound average annual growth rate over the period saw AUM nearly triple.In the context of resurgent inflationary pressures,a change in mo

84、netary policy stance globally has raised uncertainty about the direction of markets and hence the near-term outlook for total AUM through 2023-2024.Both IA and external data shows that investment performance is a fundamental underpin for AUM.Total AUM in Scotland by IA members fell faster than the i

85、ndustry average to 500 billion by the end of 2022,which takes total AUM back to the same level in nominal terms as a decade earlier.This represents 6%of total AUM,with Edinburgh the largest investment management centre outside London.IA members account for an estimated 85%of total AUM by the UK inve

86、stment management industry.Including non-IA members,we estimate total assets under management at 10.3 trillion.UK INDUSTRY IN A GLOBAL CONTEXT Global AUM fell 10%to$98 trillion during 2022,with North America falling 14%and the European fund market(ex UK)down 10%.With 11%of total global AUM,the UK co

87、ntinues to be a leading centre for excellence in investment management the largest industry in Europe and second only to the United States worldwide.Some 48%of UK AUM is now managed on behalf of overseas clients.Between 2012 and 2018,overseas client assets averaged 39%before rising steadily since th

88、en.However,there is a range of drivers in this data.The latest increase through 2022 results from overseas client AUM falling less significantly than domestic AUM over the year,amidst significant market and exchange rate effects.The majority of overseas client assets are European(56%of the total),wi

89、th North American clients being the second largest group(20%)and Asian clients rising marginally to 16%in 2022.The strong growth in assets managed for overseas-domiciled funds,relative to the size of the domestic fund market,continues.Since 2012,the share of assets in overseas domiciled funds has in

90、creased from less than half(45%)to just over two thirds(67%)of all fund assets,partly reflecting significant growth in the ETF industry.KEY FINDINGS14THE INVESTMENT ASSOCIATION1 UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE 115INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTR

91、Y:A GLOBAL CENTRE MAINTAINING INDUSTRY COMPETITIVENESSWhile the data continues to be positive on the UKs international position as reflected in client behaviour,sentiment across the UK industry is more cautious.The most important detractor in sentiment has been the incremental cost and complexity of

92、 the UK regulatory environment.In the context of the wider pressures in the operating environment,the scale of regulatory change over the past five years is of significant concern.It has already led some firms to look differently at the role the UK plays in their global operations.In considering cur

93、rent challenges and opportunities,we look at the industry competitiveness agenda through the lens of six themes:1.Stimulating innovation 2.Facilitating cross-border business3.Focusing on the cost of doing business4.Modernising the regulatory process5.Calibrating risk appropriately6.Targeting regulat

94、ion effectively The industry is also closely engaged in the wider capital market reform discussion,supporting efforts to improve the UK as an attractive listings environment.This in turn links to the wider debate around strengthening the UK as a renewed source of domestic risk capital alongside over

95、seas investment.IN 2022,THE VALUE OF ASSETS UNDER MANAGEMENT MANAGED BY IA MEMBERS STOOD AT 8.8TRNTHE INVESTMENT ASSOCIATION16The primary purpose of investment managers is to deliver good outcomes to their clients,whether these are individual savers or institutional entities like pension schemes.Thi

96、s includes providing expertise in areas such as risk management,achieving economies of scale,and providing access to a wide range of assets that would normally be out of reach for individual investors.The ultimate goal is to provide customers with a well-rounded portfolio consisting of shares,bonds,

97、and other assets,such as property,which can generate returns over the long term while mitigating undue risks.Beyond facilitating the investment process,the role of the industry includes ensuring the efficient functioning of capital markets.Investment managers play a pivotal role in maintaining prope

98、rly priced markets and effective transactions between buyers and sellers.Efficient markets are essential for the growth and stability of market economies.They allow for accurate pricing of information,which is crucial for informed decision-making and fair value determination.Investment managers thus

99、 contribute to stainable economic growth by actively participating in and promoting the efficiency of capital markets,benefitting their clients but also the broader society at large.Investment managers are not alone in their efforts to enhance capital market efficiency,as other financial institution

100、s and individuals also play a role.However,the investment management industry has traditionally been central to the long-term allocation of capital,whether through stocks,bonds,or other assets.As long-term holders of investments,UK investment managers hold UK equities for approximately six years.The

101、 industry therefore carries a significant responsibility to engage in stewardship activities with the companies they invest in to safeguard the value of their clients investments.As we discuss in Chapter 2,this responsibility now extends beyond traditional considerations to encompass broader issues

102、such as environmental sustainability and executive remuneration.This chapter offers a comprehensive look into the investment management industry in the UK.It places the industry within a European and global context while highlighting the ways in which the UK investment management industry continues

103、to thrive as a globally recognised centre for excellence in portfolio and asset management.ROLE OF INVESTMENT MANAGEMENT The investment management industry plays a critical role in the economy by directing savings towards investment opportunities.Figure 1 illustrates the process by which capital is

104、mobilised to facilitate economic growth.FIGURE 1:THE ROLE OF INVESTMENT MANAGERS IN CHANNELLING SAVINGS TO INVESTMENTSSAVINGSINVESTMENTMARKETSECONOMY 117INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE FIGURE 2:WHO ARE THE RESPONDENTS OF THE INVESTMENT ASSOCIATI

105、ONS SURVEY?Specialist pension scheme managersboth Occupational Pension Scheme(OPS)managers running in-house investment management services for a large scheme,and Local Government Pension Scheme(LGPS)pools,supporting the LGPS investment process.Respondents to the survey can be broken down into five b

106、road groups:12345Large investment management firms(both UK and overseas-headquartered),which may be independent or part of wider financial services groups such as banks or insurance companies.They undertake a wide range of investment management activities across both retail and institutional markets

107、 and manage substantial amounts for overseas clients in the UK.Such firms will typically be managing 100 billion from the UK,but a number of international firms have a smaller UK footprint.Small and medium-sized investment management firms primarily focused on UK and/or European clients,which undert

108、ake a diverse range of activities,of which investment management is a constituent part.Fund managerswhose business is based primarily on authorised investment funds.Private wealth managers and specialist boutiquestypically with a specific investment or client focus.INDUSTRY SIZE AND SCALE Total asse

109、ts under management(AUM)in the UK stood at 8.8 trillion at the end of 2022,almost double the level a decade earlier,but a drop of 12%from the record level of 10.0 trillion seen in 2021.This fall comes at a time of intensifying dislocation and uncertainty in the global economy,partly reflecting a muc

110、h more unstable wider political and security environment.Since 2016,the UK investment management industry has navigated a series of significant domestic and international shocks,notably:June 2016 EU referendum result and uncertain terms of exit from the Union ahead of the December 2020 Trade and Coo

111、peration Agreement.March 2020 Dash for Cash amidst the intensifying Covid-19 pandemic crisis which dominated 2020-21.February 2022 Russian invasion of Ukraine.September 2022 UK Fiscal Event and aftermath for the UK gilt market.“I remember when crises seemed to happen once a decade.We now seem to be

112、operating in an environment where every year there seems to be something new and systemic happening.”Despite the increasing level of turbulence,it was not really until last year that total assets and funds under management start to signal the more challenging environment with the Russian invasion of

113、 Ukraine,rising inflation and a decisive turning point in the global interest rate cycle.Unusually,returns turned negative across both bond and equities over the year as markets adjusted to higher interest rates and quantitative tightening(see Box 1 for more detail on capital market performance).In

114、response to rapidly rising inflation,we have seen an ongoing and intensifying shift in monetary policy globally.In the UK,the Bank of England raised rates eight times over 2022 from 0.25%to 3.5%and a further four rate rises followed in 2023,with rates reaching 5.25%by late summer.Central bank commen

115、tary also shifted from an original narrative of transient inflation(and hence a shorter period of monetary tightening)towards a higher for longer expectation even as headline inflation started to fall back.THE INVESTMENT ASSOCIATION18Chart 1 tracks the evolution of industry AUM and FUM over the past

116、 two decades.We observe a trebling of industry assets over the post-global financial crisis(GFC)period.In 2022,as central banks hiked interest rates and began unwinding asset purchases,the critical question arises as to the extent to which further or sustained tightening may impact upon global econo

117、mic activity and market returns and the potential timing of any easing.While we do not have historic flow data for the institutional market,IA UK investment fund data suggests that portfolio performance accounts for two thirds of the total increase in funds under management over the two decades sinc

118、e 2002,with a significant element therefore determined by underlying market performance.Boston Consulting Group suggests an even stronger performance-related driver at global level,calculating that some 90%of returns since 2006 have been market rather than flow-driven.The deterioration in AUM during

119、 2022 illustrated the limits on assumptions around the industrys ability to continue growing at the pace that we have seen over the last two decades.In an environment where recession risk continues to loom,firms must adapt to an increasingly unpredictable return environment,at“It feels more like a c

120、hanging of the guard,a more permanent change in the economic weather of markets than previous crises which might have seen short term spikes before things settle down again.”“The speed at which we went back to a world where money had a price again was a shock to the system.From an industry perspecti

121、ve,we will need to relearn how to operate effectively and serve our customers and our shareholders back in the world many of us recognise from 20-25 years ago.”The 12%decrease in AUM between 2021 and 2022 is the highest year-on-year fall since the IA started collecting data over 20 years ago and is

122、in stark contrast to the 9%compound average growth rate for the prior ten years.The only other annual fall in AUM was during the Global Financial Crisis(GFC)in 2008,which saw an 11%drop before recovering through 2009.The value of UK investment funds under management(FUM)also fell through 2022,ending

123、 the year at 1.4 trillion,14%lower than the 1.6 trillion recorded at the end of 2021.1 This year-on-year contraction is eclipsed by the 23%fall in FUM recorded in 2008.CHART 1:TOTAL ASSETS UNDER MANAGEMENT IN THE UK AND IN UK FUNDS(2007-2022)07200820092000

124、0022UK authorised and recognised funds Total assets under management in the UK trn Sources:The Bank of England,The Investment Association,The Office of National Statistics1 More information on FUM performance and trends in 2022 available in chapter 5 on the UK retail market(page 74).119IN

125、VESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE least in the near term.However,among those we spoke to,the view of 2022 being an exceptional year was not universally shared,with some industry figures placing it alongside dislocations in earlier periods.There will

126、 always be something periodically.You go back to the Global Financial Crisis,the Asia debt crisis,the Eurozone crisis,dot com crisis-pick a period.Our job is to navigate through those moments of intensity on behalf of our clients-that is the deep,profound,fiduciary obligation that we have.In that se

127、nse,I dont think last year was different.It was just its own version of a very intense phase.“On a 1020-year view,the long-term trends that support the continued growth of the industry and the continued need for us to serve our customers into channelling their money to the real economy havent change

128、d.”To some extent,these differing viewpoints highlight the challenge in predicting what happens next,and the potential impact upon total assets under management.A more permanent higher for longer environment could see a further downward adjustment in AUM,based on the interaction of several factors:L

129、ower market returns,driven by a combination of higher discount rates and weaker economic growth expectations reflected in forward valuations.Constraints on new money flows derived from higher cost of living,notably higher mortgage rates.Competing products(bank,building society accounts,annuity contr

130、acts)leading to redemptions,notably in the retail funds market.Alternatively,a softer landing on inflation and cuts in interest rates could lead to a different trajectory.Some firms also point out that the fall in a number of markets,especially the UK equity market,also offers up significant opportu

131、nities for longer term investors.“Many markets on a mean reversion basis look cheap.The reality is that if youre a retail investor,investing on a 20-30 year time horizon,it looks like there are a lot of appealing market entry points.”“Were starting to see clients put their toes back into the water w

132、ith equity growth strategies.We think it will accelerate,but it will be a slow burn.”IA member experiences of investor behaviour was varied depending on the types of clients served and the asset class composition of those firms.Clearly,2022 presented some exceptionally difficult moments,most notably

133、 for LDI managers and their clients in the Autumn(see chapter 4 on the UK Institutional Market).However,overall firms that we spoke to felt that the investment management industry as a whole had weathered the storm well to date,with redemptions in the retail market often a result of challenges aroun

134、d cost of living rather than concerns related to market performance and distrust.“I didnt pick up a sense of distrust in the industry or that the industry let investors down,whether among wholesale retail or institutional clients.Because of the breadth of capability that the industry now offers,we c

135、ould continue to remain relevant even in an environment where the status quo has been turned up in the air.”“Were seeing more cost of living-oriented behaviour.Weve seen the same number of people making monthly contributions,but the amount theyve saved has decreased by 40%.The question is:how much o

136、f that is they just had excess cash in the pandemic and were just seeing“back to normal”or how much of that is the cost of living crisis impact?It is hard to parse that out.”“We feared a huge percentage of our clients would be seeing their first market downturn.All of our clients that have started i

137、nvesting in the last three years have seen a net decrease in their portfolios,but they have not made one move.Less than 2%of our clients traded out of the market.”THE INVESTMENT ASSOCIATION20Chart 2 highlights the 2022 performance of selected regional equity and bond market indices.2 Both equity and

138、 bond markets turned negative amid geopolitical conflict and rising inflation.Russias invasion of Ukraine in February,and subsequent sanctions,had a particularly large impact on energy and food prices globally.EQUITY MARKETSIn a very challenging macroeconomic environment,most major regional equity i

139、ndices recorded negative returns in 2022.Global equities fell 7%,contrasting with the 20%return recorded in 2021.UK equities were the only exception and remained marginally positive at 0.3%,the first time in a decade that the UK outperformed global and US equity markets.The relative resilience of UK

140、 equities is largely a reflection of a higher weighting towards certain sectors such as energy and healthcare.By contrast,US equity returns were down 9%.High growth tech stocks,which make up a substantial proportion of total US equity market capitalisation,had a particularly difficult year.European

141、equities fared marginally better than US equities,down 7%in 2022.The continents reliance on Russia for natural gas caused energy prices to spike sharply in the middle of the year exacerbating inflationary pressures and impacting economic growth.Asia Pacific and Japan exhibited the worst performance

142、of 2022,ending the year with negative returns of-10%and-9%,respectively.Much of the downturn was driven by the poor performance of Chinese equities.When China retired its zero-Covid policy in Q4,Asia Pacific equities rallied,though not enough to recover earlier losses.BOX 1:GLOBAL CAPITAL MARKET PER

143、FORMANCE IN 2022 BOND MARKETSInvestors and portfolio constructors have become used to an inverse relationship between equity and bond prices.In 2022,equity and bond prices moved down in tandem.The Bloomberg Global Aggregate index for global bond markets recorded negative returns of-6%over the year.I

144、t was a particularly difficult year for the UK bond market.UK Gilts and UK Non-gilts recorded market returns of-25%and-18%,respectively.Although exposed to the same headwinds of rising inflation and rising interest rates,investors in UK bonds were also faced with exceptional turbulence following the

145、 Fiscal Event on 23 September.Central bank intervention brought some stability,but yields remained elevated.CHART 2:TOTAL RETURNS ON SELECTED INDICES IN 2022US bondsUK non-giltsUK giltsGlobal bondsEmerging market equityJapan equityAsia Pacifc(ex Japan)equityUS equityEurope(ex UK)equityUK equityGloba

146、l equity-25%-20%-15%-10%-5%0%Source:Morningstar2 These are presented on a total return basis.Total returns include income distributions through dividends or share buyback as well as the rise and fall of stock or bond prices that are measured through capital returns.211INVESTMENT MANAGEMENT SURVEY 20

147、22-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE SCOTLAND AS A MAJOR CENTREWhile London continues as the undisputed investment management centre in the UK,the second most important city remains Edinburgh,reflecting the wider importance of Scotland as a centre for the industry.The share of UK

148、assets managed from Scotland fell by one percentage point between 2021 and 2022,accounting for 6%of UK AUM.However,this masks quite a sharp fall in nominal AUM year-on-year from 700 billion to just under 500 billion,almost 30%,reflecting differential operating experiences across UK-based firms throu

149、gh recent volatility.Over the past decade,the share of Scottish AUM as a percentage of UK AUM has fallen by almost half(11%in 2012).This in part reflects some major changes in the corporate,and in consequence,operating structure of the Scottish asset management industry.It also reflects differential

150、 growth rates.Over the same time period,the total value of UK AUM has more than doubled.This suggests that the overall decrease in the proportion of UK AUM directly managed in Scotland is a reflection of faster relative growth in London and elsewhere in the UK,rather than a significant fall in Scott

151、ish managed assets in nominal terms.Chart 3 looks at the regional distribution of assets managed by firms headquartered in the UK.Over the past ten years,there has been a gradual decrease in the share managed by firms headquartered in Scotland,from a quarter in 2012 to 16%in December 2022.Over the s

152、ame period,firms headquartered in London have come to manage 81%,up from 70%in 2012.The concentration of assets managed in the UK to firms headquartered in London fits in with a broader pattern we see in our employment data.Specifically,business operations have become more centred in Scotland,while

153、portfolio management has become increasingly concentrated in London.3 CHART 3:UK-MANAGED ASSETS BY UK REGIONAL HEADQUARTERS(2012-2022)100%80%60%40%20%0%20000212022London Scotland Other Source:The Investment Association3 Data on regional employment trends available in

154、 Chapter 6:Operational Resilience(page 98).22THE INVESTMENT ASSOCIATIONSCALE OF WIDER INDUSTRYThe Investment Associations membership is diverse and far-reaching.Together,IA members are responsible for an estimated 85%of all investment management industry assets managed in the UK.4 Firms not covered

155、in this report will belong to one of the following two groups:Firms specialising in alternative investments:The majority of firms not captured in the report typically specialise in alternative investments,including:hedge funds,private equity funds,commercial property management,discretionary private

156、 client and private debt management,and natural resource management firms.Firms outside full IA membership.Investment management firms that sit outside the IA membership other than those listed above is a difficult group to accurately size due to the lack of consistent third-party data.Using third-p

157、arty data and proprietary estimates,we estimate the wider industry at 10.3 trillion,down from 11.6 trillion in December 2021.Figure 3 provides estimates and illustrates how wider parts of the industry contribute to total assets under management in the UK.54 Additional information on IA membership an

158、d industry trends regarding the type of firms that make up the investment management industry available in Chapter 6:Operational and Structural Evolution(page 93).5 A large share of IA member firms are active participants in the industry niches featured in Figure 3,so please account for a minimal de

159、gree of overlap between the wider industry figures.FIGURE 3:WIDER UK INVESTMENT MANAGEMENT INDUSTRY IN 2022IAMEMBERSHIP8.8TRNPRIVATECLIENT780BNUK COMMERCIAL PROPERTY MANAGERS 540BNHEDGEFUNDS300BNPRIVATEEQUITY250BNTOTAL ASSETS MANAGEDIN THE UK ESTIMATED AT10.3TRNETF OPERATORS 530BNSource:The Investme

160、nt Association,Pitchbook,Preqin23INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE 1THE UK IN GLOBAL CONTEXTThe impact of a tough macroeconomic environment was not confined to the UK investment management industry.Global assets under management in 2022 fell 10%fr

161、om$109 trillion to$98 trillion.6 The UK still maintains its position as the worlds second-largest investment management centre,overseeing 11%of global assets under management.Assets under management in the US,which account for nearly half of global AUM,fell 14%year-on-year to$47 trillion.Estimates f

162、or the European funds market(ex UK)suggests that total European fund assets were down around 10%through 2022 in local currency terms.7 Together,the US,UK and Europe are responsible for over four fifths(86%)of global AUM.Japan stands out as a significant centre for investment management in the rest o

163、f the world,itself responsible for 7%of global AUM.TABLE 1:GLOBAL ASSETS UNDER MANAGEMENT IN 2022 Assets under Assets under management management(local currency)(equivalent)United States$47 trillion8 39 trillionEurope 28 trillion9 25 trillionJapan 888 trillion10 6 trillion Source:HMR Revenue&Customs

164、,Boston Consulting Group,EFAMA,Nomura Research InstituteAt a European level,the UKs investment management industry has a market share of 37%11,which is equivalent to that of the next three largest European markets combined.As illustrated in Figure 4,the UK is followed by France(16%of European AUM),G

165、ermany(11%)and Switzerland(10%).Since entering the ranks of the top five largest European investment management centres in 2020,the Netherlands remains the next largest centre(7%).FIGURE 4:ASSETS UNDER MANAGEMENT IN EUROPEAN COUNTRIES(DECEMBER 2021)UK37%FRANCE16%GERMANY11%SWITZERLAND10%NETHERLANDS7%

166、Source:EFAMA6 Boston Consulting Group,The Tide Has Turned:Global Asset Management 2023.7 EFAMA,International Statistics Release,Q4 2022 and Q4 2021.8 Boston Consulting Group,The Tide Has Turned,Global Asset Management 2023.9 EFAMA,Our industry in numbers(data estimated as of September 2022).10 Japan

167、s Asset Management Business 2022-23,NRI(data as of December 2021).11 At the time of publication,2022 data is not yet available on a pan-European basis.These estimates are as of December 2021,based on data published by EFAMA.THE INVESTMENT ASSOCIATION24MULTIPLE DIMENSIONS OF INTERNATIONAL ACTIVITYA k

168、ey driver of the scale of total assets under management is the international nature of the UK investment management industry,both in terms of the customers and businesses served and the underlying assets.Figure 5 highlights four key metrics that illustrate the extent to which the UK investment manag

169、ement industry is highly international and becoming more so over time:Assets managed on behalf of overseas clients Assets invested in overseas markets Overseas assets delegated to UK based portfolio managers Assets managed by firms headquartered overseasFIGURE 5:FOUR MEASURES OF A GLOBAL INDUSTRY IN

170、 2022CUSTOMERS48%of total assets managed in the UK are for overseas customers.Over half of those are in the rest of Europe.MARKETS78%of the shares managed in the UK are invested in overseas markets for domestic and overseas customers.COMPANIESThe UK attracts firms from around the world.Companies hea

171、dquartered outside the UK are responsible for 60%of total assets managed here.ECONOMIC CONTRIBUTION5.5%of total UK service exports from the investment management industry.OVERSEAS CLIENT MARKET UK retail and institutional investors continue to account for the majority of AUM in 2022,contributing 4.6

172、 trillion to total UK managed assets,while assets managed on behalf of overseas clients stood at 4.2 trillion.As a proportion of total assets,AUM for overseas clients rose two percentage points and now account for almost half(48%)of total assets.Identifying drivers of change in the overseas client n

173、umber is challenging in the absence of flow data at AUM level.It will reflect a series of factors,including client behaviour,operational decisions regarding investment management capabilities,capital market returns and exchange rate movements.In the case of the 2022 increase from 46%to 48%,the main

174、driver appears to be the differential rate of change in overseas and domestic customer AUM.While assets for both UK and overseas clients fell over the year,UK client assets fell by 16%compared with a 7%fall in assets managed on behalf of overseas clients.Looking back over the past five years,Chart 4

175、 shows the consistent rise in the proportion of assets managed on behalf of overseas investors since 2018,following a period during which overseas client AUM averaged some 39%of total AUM.125INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE CHART 4:CHANGE IN PROP

176、ORTION OF UK AND OVERSEAS CLIENTS(2012-2022)Overseas clients UK clients100%80%60%40%20%0%20000212022Source:The Investment Association The distribution of the 4.2 trillion of overseas client assets by region is illustrated in Figure 6.In terms of the top three regions

177、:European clients continue to make up the majority(56%)of overseas client assets,from 59%in 2021.Of the 2.4 trillion managed on behalf of European clients,the majority(91%)is managed on behalf of clients in the European Economic Area,approximately 2.1 trillion.North American clients account for appr

178、oximately 20%of the UK industrys overseas client base,broadly unchanged in relative terms from 2021.The share of total overseas client assets for Asia-Pacific clients increased by one percentage point over the year,accounting for 16%of assets as of December 2022.Assets managed on behalf of clients f

179、rom other regions experienced little change between 2021 and 2022.Middle East client assets continue to account for 6%of overseas client assets.Latin American and African client assets continue to each account for approximately 1%of overseas client assets.FIGURE 6:ASSETS MANAGED ON BEHALF OF OVERSEA

180、S CLIENTS IN 2022EUROPE2.4trnNORTHAMERICA845bnASIA-PACIFIC680bnMIDDLEEAST245bnLATINAMERICA45bnAFRICA25bn THE INVESTMENT ASSOCIATION26Taking a slightly longer perspective,Chart 5 illustrates how the distribution of overseas client assets has evolved over the past five years.Broadly,assets managed for

181、 European clients(down two percentage points to 56%)and Middle Eastern clients(down two percentage points to 6%)have both decreased in relative terms.In contrast,North American(up from 17%to 20%)and Asian(up from 13%to 16%)client assets have increased.CHART 5:OVERSEAS CLIENT ASSETS BY REGION (2017-2

182、022)Europe North America AsiaMiddle East Latin America Africa 100%90%80%70%60%50%40%30%20%10%0%2017 2022Source:The Investment AssociationSERVICES TO OVERSEAS FUNDS Total assets in UK-managed investment funds stood at 4.0 trillion at the end of 2022,marginally down from the 4.1 trillion reported in t

183、he previous year.The majority(67%)of these assets sit in funds domiciled overseas,with the portfolio management taking place in the UK:Ireland is a key location for overseas domiciled assets accounting for a third(33%)of total fund assets,the same proportion of assets that sit in UK domiciled funds.

184、Luxembourg is the third largest country of domicile accounting for 15%of total fund assets.The remaining fifth of assets sit in funds domiciled in the EEA(8%)and outside the EEA(12%)Looking back over the last ten years,Chart 6 highlights the growing significance of the UK as a centre of excellence i

185、n portfolio management for international investment funds,relative to the scale of the domestic funds market.Since 2012,the share of assets in overseas domiciled funds has increased from less than half(45%)to just over two thirds(67%)of all fund assets.It should be noted that our funds data includes

186、 assets in open ended funds,investment trusts,ETFs,hedge funds and money market funds(MMFs).Some of these products,most notably institutional MMFs and ETFs,are almost exclusively domiciled overseas.While we have seen assets in UK domiciled funds increase in nominal terms over the last decade,the sig

187、nificant growth of ETFs over the past five years has significantly contributed to the growth in the share of assets sitting within overseas domiciled funds(see Box 4 for more detail on trends in the ETF market).CHART 6:PROPORTION OF ASSETS MANAGED IN UK AND OVERSEAS FUNDS(2012-2022)Overseas domicile

188、d funds UK domiciled funds 100%80%60%40%20%0%20000212022Source:The Investment Association127INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE IMPORTANCE TO UK SERVICE EXPORTSThe internationalisation of UK investment management pre

189、sents an important opportunity for the industry to export its services globally.This is supported by the continued growth in assets within overseas domiciled funds where portfolio management is delegated to UK based portfolio managers in addition to the industrys increasingly international client ba

190、se(see charts 6 and 4,respectively).Chart 7 looks at the investment management industrys contribution to the UKs total export earnings since 1996.Once adjusted for inflation,the contribution to the UKs total export earnings stood at 9.4 billion in 2021,which is marginally down from 9.7 billion in 20

191、20.The revised12 ONS data show a consistent increase in the value of exported services from 1996 to 2008(from approximately 1.2 billion to 7.6 billion).Post-2008 the data show more fluctuations but overall,the value of exported services has grown to reach 9.4 billion.The right-hand side of Chart 7 t

192、racks the contribution of fund manager exports to total net exports.ONS data show that,since 2018,fund manager exports account for approximately 5.5%of total UK net exports.This is higher than the average 3%recorded in the 1990s(the last period of sustained growth),but still below the 6%to 8%recorde

193、d between 2006 and 2012.12 Data revisions by the Office of National Statistics means we have seen a reversal in the trend we have been reporting for the past few years.Whereas we had been a reporting a decrease in the contribution of fund managers to exported services,this has stabilised over the pa

194、st five years.CHART 7:INDUSTRY EXPORT EARNINGS AND RELATION TO UK SERVICES EXPORTS(1996-2021)96920002000420052006200720082009200001920202021Export receipts(infation adjusted)Net fund manager exports as%total net services exports(RH)bn

195、 9%8%7%6%5%4%3%2%1%0%Source:The Office of National Statistics THE INVESTMENT ASSOCIATION28MAINTAINING INDUSTRY COMPETITIVENESSAlthough the data presented in this years report remains broadly positive on the international standing of the industry at a time of significant challenge,sentiment in the in

196、dustry about the UK as a place to do business is less so.This partly reflects the scale of policy and regulatory change that has coincided with the challenging global economic,political and security environment that we explored in the earlier part of this chapter.In a rapidly changing world,there is

197、 real concern that the UK is already losing ground as firms look elsewhere to innovate and establish new capacity that could otherwise be located in the UK.In early summer 2023,the Investment Association set out six regulatory objectives for the UK investment management industry to remain competitiv

198、e:13 Stimulate innovation Facilitate cross-border business Focus on the cost of doing business Modernise the regulatory process Calibrate risk appropriately Target regulation effectively The comments made in interviews conducted for the Survey echo these objectives,but with a particular emphasis on

199、the threat to innovation and the UKs future as a cross-border hub for the best talent in investment management if the cost of doing business in the UK is not addressed with a more efficient and proportionate regulatory system.More positively,there is an emerging alignment between industry and regula

200、tors on key aspects of the reform agenda,notably around the need to enable technological innovation and a less prescriptive approach to important aspects of the customer experience.STIMULATING INNOVATION As we discuss in more detail in the next chapter,there are different drivers of innovation,with

201、firms seeing the central importance of cost efficiencies alongside potentially significant advances in quality of decision-making,operating infrastructure and customer interaction.“The tokenisation of assets and funds could transform this industry and make access even easier.Being able to harness AI

202、 and enhance the use,quality and access to data will be transformational.”As part of this process,the industry is strengthening at pace the dialogue with policymakers and regulators.Notably,a new Technology Working Group was established in early summer 2023 as part of the UK Asset Management Taskfor

203、ce,which will help to identify the main opportunities in areas such as tokenisation and distributed ledger technology.Firms also continue to see an obvious link between innovation and the sustainable investment agenda,with the potential for the UK industry to lead the way in which the decarbonisatio

204、n imperative is embedded into the investment and capital market delivery infrastructure.This extends from issuance e.g.how the green bond market develops through to use of data for investment decision-making and portfolio or fund construction.Linking to other aspects of prioritisation,notably the im

205、portance of cross-border business for a significant part of the investment management sector,there remains limited appetite for regulatory innovation to move the foundations of the UK fund regime too far from the established UCITS standards and a widespread desire for close alignment with the EU reg

206、ime.At the same time,there is a recognition and ambition in certain areas to ensure the UK has the bench strength to deliver in accelerating areas such as private markets,which requires a new generation of fund vehicle such as the Long-Term Asset Fund.13 Investment Association response to FCA Discus

207、sion Paper 23/2,Updating and improving the UK regime for asset management.129INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE“The EU fund regime is an extraordinary export story for the EU and we should be extremely careful about diverging away from that.We shou

208、ld be as closely aligned as possible because it has been a global kitemark for 35 years for quality.It balances the ability to generate exciting investment returns with high quality investor protection.That is the gold standard.”FACILITATING CROSS-BORDER BUSINESS The critical importance of portfolio

209、 management at the heart of the UK investment management industry continues to be a central message from firms.They emphasise the need for ongoing vigilance and determined promotion of open borders in a global environment increasingly characterised by re-localisation and re-regionalisation and a deg

210、ree of protectionism in a number of key strategic sectors.“The part of the value chain that creates really high paying jobs and drives the economy forward is the investment management component.At the moment,even by adding cost and launching EU fund structures,were still able to access global invest

211、ors everywhere using our UK fund managers.The most important thing is that continues.”“The UK must not take for granted its position.We have a whole ecosystem around the investment management industry in the UK:sell side,accountants,lawyers,auditors.That ecosystem allows us to serve millions of cust

212、omers globally.”At the same time,at product level,potentially diverging UK and EU regulation is also an obstacle to effective cross-border business.This has several specific ramifications:For UK and EU fund products,where portfolio management takes place in the UK,different approaches can significan

213、tly complicate delivery.For example,SDR and SFDR both have requirements that impact the way in which SRI portfolios are constructed and report.For EU fund products sold into the UK,having a different UK regime can lead to much more complicated requirements if a high degree of equivalence is needed i

214、n key areas of governance and reporting.The industry is awaiting the new Overseas Fund Regime,which will determine the parameters of the UKs import regime in this area.“For the UK asset management industry,the biggest opportunity is still managing assets or pools of assets that sit outside the UK.Th

215、e ability to still delegate asset management into the UK is by far the biggest asset we have and that is what we export.”Getting the regulation and the terms of trade right in this area remains a significant and sensitive challenge for policymakers,regulators and industry.5.5%FUND MANAGER EXPORTS AC

216、COUNT FOR APPROXIMATELYOF TOTAL UK NET EXPORTSTHE INVESTMENT ASSOCIATION30FOCUSING ON THE COSTS OF DOING BUSINESS The question of costs and complexity for example,through the layering of new regulation onto similar existing requirements elicited the strongest response in Survey interviews on competi

217、tiveness this year.Over the past seven years,the UK has seen an unprecedented degree of new regulation affecting the sector,including:FCA Asset Management Market Study(2015-2017,with implementation 2018-2019),FCA Platform Market Study(2017-2019)and CMA Investment Consultants Market Investigation(201

218、7-2019)Implementation of MiFID II in 2018 Senior Managers and Certification Regime(applying to sector from December 2019)LIBOR Transition with final use at end of 2021 Consumer Duty(in force from 2022)Sustainable Disclosure Regime(policy statement expected by Q4 2023)Regardless of size,business mode

219、l and ownership type,there is a widespread view that costs have increased to a point where the UK is becoming a much more difficult place to do business as a fund management and/or investment management business.Firms point out that there are other jurisdictions,including the US,which provide high c

220、onsumer protection regulation and a lower regulatory compliance burden that could see the UKs global competitiveness reduced,particularly in a post-Brexit environment,where access to the European market is less certain.“I worry that the default now is to add regulation on top of regulation.It is sup

221、pressing innovation.”“The UK part of the business is about one third of total assets under management and revenue of the global business,but my regulatory bill is around four times the rest of the organisation.What that means is if you look at me as a standalone business,Im far less profitable than

222、my APAC business or our North American business.A lot of that is to do with cost of regulation.”“The impediments to success are a whole load of things from the treatment of VAT on asset management services to the regulatory agenda.If we have to jump through hoops that other countries dont have to ju

223、mp through,is it easier just to deal with different jurisdictions?”In terms of the practical consequences of this rising cost,the risk is that innovation happens elsewhere,which has implications for the talent pool and the UKs wider ability to attract the brightest and best as has historically been

224、the case for UK financial services.“Theres only a finite amount of capital available and we could invest in generative AI for better product design or other things that I think could really benefit the UK economy and the consumer.”“The challenge is that with cost of regulation,on top of all of the h

225、eadwinds we are facing in markets and the economy,margins are going down and UK-based firms cant invest so much back into their business.It will then be harder to retain talent and that could be quite a significant impediment.We could find that we will fall behind our competitors.”131INVESTMENT MANA

226、GEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE MODERNISING THE REGULATORY PROCESS Linking closely to the frustration over rising costs and complexity is a desire to see a different approach put in place to ensure the most effective regulatory process.One central theme,echoed

227、 already in industry calls for a new Investment Management Regulatory Forum,is the desire for better structures for dialogue between regulators and industry.At the same time,there is recognition by some that the relationship between firms and regulators is moving in a more positive direction,as refl

228、ected in a number of recent regulatory initiatives.“We need rule-makers who listen to the industry and work with the industry to make it a competitive vibrant market.We all want good consumer outcomes.My business would go bust tomorrow if we dont have good customer outcomes.”“We recognise that there

229、 is good dialogue underway,a willingness to adapt,evolve and learn from some of the things that went wrong.From listing reform to the permissioning that has enabled the first LTAFs to be out in the market.All of those things underpin that embrace of the future.”A further point,again echoing observat

230、ions made over many years by the industry,is the importance of predictability and stability at a political level.Inevitably,governments will change,and elections will bring about new priorities.But for firms and their customers increasingly making funding commitments in areas such as energy infrastr

231、ucture that stretch out over decades,it is both regulatory and political certainty that matters,such that the terms of trade do not unexpectedly change.“We need to invest for the long term in our systems and our infrastructure.In order to do that,we need to understand and have confidence in the regu

232、latory agenda.The regulatory agenda is in many parts driven by the political agenda.If that agenda keeps on changing,can we ever get that alignment and planning that we need?”CHANGING RISK CULTURE Members also highlighted that while consumer protection remains a core tenet of their retail businesses

233、,risk is an inherent component of investment.Some felt that the direction of regulation has been to constrain the ability to take risk in some areas,which will limit investment options for consumers.At the same time,there is a recognition of progress being made in changing approach by the FCA,with i

234、ndustry support for the FCAs identification in recent years of high cash holdings by some savers as a potential source of harm as a result of missing out on investment opportunity.14“If we aspire for a world which is about risk elimination,were not going to go anywhere.Were in the business of taking

235、 the right risk on behalf of our clients and its only through that,that we will generate the returns necessary to safeguard their future financial requirements.Every now and then the zeitgeist feels quite hostile to that.Weve got to try to reset that.”The changes needed to boost the UKs risk culture

236、 include more decisive action on resolving what has become a long-running debate over improving access to guidance alongside greater use of regulated financial advice.Again,2022-23 has brought signs of progress with both a new consultation on simplified advice and a cross-stakeholder review,sponsore

237、d by HMT and FCA,to examine potential solutions to the advice/guidance boundary conundrum.It is clear that the regulatory parameters need to be addressed as an initial priority.This could be particularly important in helping to facilitate the further development of regulated personalised guidance:e.

238、g.tools to nudge investors towards certain options.As we discuss in the final section of this chapter,there is also scope for AI to facilitate enhanced customer services in this area.14 FCA Retail Investment Strategy(2021)noted that out of 8.6m consumers holding over 10k in cash,half could potential

239、ly benefit from investing.THE INVESTMENT ASSOCIATION32TARGETING REGULATION EFFECTIVELY Finally,in an era of what may become a more principles-based regulatory environment(eg.through the Consumer Duty),firms are keen to look again at the overall rule book and see where there is scope for simplificati

240、on of what has become an ever more complex set of requirements.“Theres an opportunity to think through the rulebook and look at where do we have lack of proportionality and how can we simplify some of the regulations.If were going to be principles based and outcomes oriented,we have to go to the pro

241、cess-oriented rules that the FCA-on a day-to-day basis does function on.Some of those processes and rules have to be simplified.”“We have a productivity lapse in part because we have over-regulated,and we could have a productivity boost if we actually simplified some of the regulations and rely inst

242、ead on the governance put in place for Consumer Duty.”There are signs that this is starting to happen.An initial FCA discussion paper in 2022(DP22/6)on the future of disclosure has begun to explore how to get the balance right between a consistent foundation and the scope for firms to tailor materia

243、ls to customers without the kind of prescription that has characterised retail documentation.The potential for innovation and better customer outcomes recognising the needs of different individuals or groups is significant.The UK industrys current position is to find a way to preserve the advantages

244、 of consistency(for example,a standard way of presenting key metrics such as charges or performance)while allowing greater freedom for manufacturers and distributors in how they present wider information as part of the investment process,both pre-sale and reporting.THE FUTURE OF PUBLIC MARKETS AND T

245、HE UK LISTINGS REVIEW Beyond sector-specific issues,the industry is also closely engaged on the wider shape of the UKs capital markets,which are critical to long-term wider competitiveness.A central concern in the UK in recent years has been the decline of new listings in London,and in particular th

246、e loss of a number of innovative,high-growth companies to listings in other jurisdictions,notably the UK.This concern has led to a number of reviews,including the Kalifa,Hill,Secondary Capital Raising,UK Prospectus Regime and UK Wholesale Markets Reviews,all of which have had the aim of attracting a

247、nd retaining high-quality companies to the UK and unlocking more capital to be allocated to such companies.CHART 8:NUMBER OF UK LISTED COMPANIES (1975-2022)95973200520072009200,5003,0002,5002,0001,5001,0005000Source:World B

248、ank,London Stock Exchange Group133INVESTMENT MANAGEMENT SURVEY 2022-23|UK INVESTMENT MANAGEMENT INDUSTRY:A GLOBAL CENTRE Following these Reviews,in 2023 the FCA made a number of announcements aimed at furthering these objectives,namely a new regime for public offers and admissions to trading,and pro

249、posals for reforms to the UK Listings Regime.The FCAs proposed new regime for public offers and admissions to trading aims to simplify and reform the current regime so that:Issuers can raise capital in an effective and efficient way.Costs are reduced for issuers and investors.Investors have sufficie

250、nt reliable information on companies securities.There are fewer barriers to participation.There is appropriate monitoring and verification of issuers and securities.The proposed reforms to the Listing Rules regime come after concerns were raised that the current Listing Regime is overly restrictive

251、and acts as a deterrent to companies looking to list in the UK.The main proposed reform is the combination of the current premium and standard listing segments into a single segment for equity shares in commercial companies.“We have British companies deciding to go and list in the US because its too

252、 hard here.You have asset managers now starting their businesses and doing any business outside the UK because its too hard to register and too hard to start up.”“The challenge is finding the right balance between attracting companies and maintaining regulatory rigour it can be the best market in th

253、e world from a governance perspective,but its not much use if no one will raise money here.”The IA continues to engage with the FCA on these topics,and is broadly supportive of the reforms,but notes the need for a balance between:UK competitiveness.The needs of companies and their ability to raise c

254、apital on public markets.The fundamental role of investment managers to deliver sustainable returns and protect value on behalf of their clients.The risk appetite and needs of society and the economy to ensure the integrity of and public confidence in well-functioning public markets.“We should defin

255、itely try to be more competitive and try to remove bureaucratic barriers to making the UK an attractive place to list.What we shouldnt do is compromise on the quality benchmark of our standards.The Goldilocks point is standards that are high and have value to investors and investor protection whilst

256、 minimising bureaucracy and governance overhead.”The IA is working with the FCA and other key stakeholders to identify ways to encourage high-growth and high-quality companies to operate in the UK while ensuring key investor protections remain in place.On the demand side,the industry is also closely

257、 engaged with the 2022 Mansion House reform agenda designed to focus the debate onto the importance of risk capital for UK economic growth more broadly,whether for private or public companies(see further discussion on Private Markets in Chapter 3).342 THREE KEY THEMES THAT WILL SHAPE THE UK INDUSTRY

258、THE INVESTMENT ASSOCIATION1.ACCELERATING IMPACT OF TECHNOLOGICAL ADVANCE In Chapter 1,we set out the central importance of innovation to the industrys agenda.Here,we explore in more detail the transformative potential of AI and tokenisation.We also look at some operational resilience challenges aris

259、ing from this new technological environment.Through 2023,AI has raced to the top of the agenda for businesses globally.The likely scale of impact for investment managers is seen as very high for an industry dependant on the interpretation and manipulation of data to build its products and services.T

260、here is also clear recognition of the emerging use cases for improving the customer interaction side,ranging from communication to better support and guidance.While AI has dominated this year,the potential for tokenisation to transform the operating infrastructure of both the funds industry and capi

261、tal market is moving up the agenda for an increasing number of firms.The UK is reaching a critical point in defining its approach,with clearer regulatory foundations expected in the near term.With many firms still assessing how they might engage with a more tokenised delivery infrastructure,an avant

262、-garde is moving ahead more quickly and foresees ramifications for the future of the investment fund as a concept.This hinges particularly on mass customisation of portfolios.Although tokenisation is not a pre-requisite,it is seen by some as a powerful tool to drive transformation,especially in less

263、 liquid markets.Opportunity also brings risk and firms are working at pace to enhance their operational resilience at multiple levels,including dependence on critical third parties in the technology market and ever more sophisticated and AI-enabled cyber threats.2.EVOLUTION OF SUSTAINABLE AND RESPON

264、SIBLE INVESTMENT AGENDA After a period during which SRI assets under management and flows have grown very rapidly,SRI appears to be entering a new and more challenging phase of development.We explore this under three headings.Client behaviour and the impact on flows.After a strong 2020-2021,flows to

265、 SRI funds in the UK have tapered,partly reflecting the same cost of living concerns that have adversely impacted flow across the funds market.At the same time,relative performance in 2022 was impacted by a market pull-back in the tech sector and stronger performance in oil and gas,aerospace,and def

266、ence stocks.This has served as a reminder that allocation momentum has different drivers,with a range of motivations and preferences among individual investors and asset allocators.KEY FINDINGS35INVESTMENT MANAGEMENT SURVEY 2022-23|THREE KEY THEMES THAT WILL SHAPE THE UK INDUSTRY2Complexity of deliv

267、ery environment.Looked at through the lens of blockers and drivers,the industry faces several issues,notably:The wide range of individual and institutional preferences across the themes covered by the SRI umbrella.Always a reality,this has become more evident in debates over energy security and weap

268、ons investment after the invasion of Ukraine.A more significant debate about the implications of the fiduciary/agency model for the leadership role of the investment management industry in this space.Increasing signs of tension over the distribution of transition costs in the context of a more chall

269、enging economic environment,which have the potential to amplify the discussion about industry role.None of these factors are seen by firms as challenging what is widely regarded as a mega trend in SRI,driven by the urgent need to tackle the global climate crisis.However,they are changing aspects of

270、how the conversation takes place with some clients in some jurisdictions and are likely to continue to do so.Evolving regulatory expectations.Regulators internationally are continuing their focus on SRI with an increasing emphasis on disclosure standards.In the UK,the next step will be a labelling a

271、pproach under the Sustainable Disclosure Requirements(SDR)regime.While there is strong industry support for the overall objective,there has been a significant gap between the reality of the SRI process and the ability of a small number of labels to capture this in a way that can be both helpful to c

272、ustomers and operationally viable.One critical issue to resolve in all eventualities will be availability and consistency of data,which remains a central challenge internationally.3.ONGOING IMPORTANCE OF CULTURAL SHIFT Attention to Equity,Diversity&Inclusion(EDI)continues to be a growing industry pr

273、iority and lies at the heart of the cultural transformation agenda.Together with the embrace of new technology,success in EDI is widely seen as central to the industry remaining relevant to younger generations with a different set of expectations and tolerance,as well as contributing to the wider co

274、rporate and social good that EDI delivers.The focus is shifting away from diversity characteristics alone towards creating an inclusive culture that promotes belonging and psychological safety across the organisation and throughout the entire employee experience.Here too,data matters enormously and

275、firms are placing more emphasis on gathering breadth and depth of workforce data so that firms understand where they are currently,and how to move forward effectively.From a UK regulatory perspective,an important next step will be an FCA Consultation Paper on Diversity and Inclusion in the financial

276、 sector,building on an earlier Discussion Paper.The CP is anticipated in the second half of 2023 and in the meantime,industry continues to make progress in EDI initiatives.Areas that require further attention include the need to ensure sustainable change,particularly in executive decision-making and

277、 investment roles.We expect much more activity in the years ahead to further progress this critical agenda.THE INVESTMENT ASSOCIATION36In Chapter 1,we outlined an adaptation challenge in what increasingly looks like a new macro-economic and macro-financial environment.This has been driven by a serie

278、s of crises that have both destabilised the existing global political and security order and contributed to a change of direction on global monetary policy that has had significant consequences for markets.Looking to the medium and longer term,the industry has set out an agenda for maintaining compe

279、titiveness that prioritises innovation,but also requires a range of further changes to be successful.In this chapter,we look at three key themes that are a focus in this new environment.We start with accelerating technological change,then look at sustainability and EDI.These themes have something im

280、portant in common,notably their resonance well beyond financial services and investment management.They are critical areas that are now at the heart of the wider global policy agenda and increasingly,in the case of both sustainability and EDI,creating points of polarisation and disagreement.Getting

281、new technology,sustainability and culture right is therefore a challenge that will take the industry beyond its comfort zone in multiple different ways,but will ultimately define its relationship with wider society,both in terms of the product set itself and in terms of wider values and political al

282、ignment.ACCELERATING TECHNOLOGICAL ADVANCEAlthough the direction and precise pace of innovation continues to be difficult to predict,there is an increasing consensus that investment management,as part of wider financial services and the economy,is about to experience transformative change.The debate

283、 through 2022 and into 2023 has been increasingly dominated by artificial intelligence(AI),but the potential offered by tokenisation/digitalisation still appears significant,albeit with a range of views about the pace of adoption and impact.This section of the report looks both at AI and tokenisatio

284、n.A NEW INDUSTRIAL REVOLUTION?The explosion of generative AI onto the scene in late 2022 is widely seen as the beginning of a transformative phase in technological development.AI promises to provide significant productivity benefits from a general business perspective,potentially altering the invest

285、ment outlook across a range of investee sectors and companies,as well as reshaping the internal workings of member firms.A number of comments in the Survey interview process reflected the recognition of the scale of potential change ahead.“AI is revolutionary.Its been just six months now since chat

286、GPT,but it has the potential to have an earth-shattering impact upon us.It presents an opportunity for a significant increase in productivity across the entire economy.”Done properly,AI-enabled utilisation of data will significantly change how products are built,the level and mode of interaction bet

287、ween companies and their employees,and between companies and their customers.Many firms have experimented in the early part of 2023 with new AI tools to identify the ways in which greater data insight can be achieved.“Investment in data,both in terms of actual data as well as the analysis,driving th

288、at through to decision making will be critically important.”37INVESTMENT MANAGEMENT SURVEY 2022-23|THREE KEY THEMES THAT WILL SHAPE THE UK INDUSTRY2It has also provided a new lens through which to imagine other changes within the industry,for example how AI can be paired with distributed ledger tech

289、nology,or with customer interfaces,to accelerate innovation through the distribution chain.For example,generative AI could help to provide explanation and information for actual or future investors.While this would not replace the sophistication or nuance of regulated financial advice,it could help

290、facilitate some elements of the investor journey in an accessible and scalable manner.“Generative AI can really help to reduce the advice gap.One of the big barriers is people feeling there is a huge information wall to climb before deciding whether to take formal advice.AI could really help a consu

291、mer to navigate through those challenges.”“If youre a wealth manager right now,you have got to be really thinking about what is going to happen with generative AI and the ability to interact with your client on a digital basis.”TOKENISATION/ASSET AND FUND DIGITALISATIONDevelopments in this area were

292、 somewhat overshadowed by the rise of AI in the period.However,activity is accelerating internationally,and the UK Asset Management Taskforce now has a Working Group looking closely at the practicalities of fund tokenisation with a view to removing regulatory blockers in the near future.This area ha

293、s not moved quickly so far in the UK and there is considerable caution in some parts of the investment community.However,there is increasing recognition of the long-term transformative potential and the need to put foundations in place today.“With tokenisation,people will love the concept.But,until

294、they can actually feel comfortable that it is delivering what they hope and expect,Im not sure that you will get rapid,broad adoption.Theres a long way to go before people trust in that technology.”“Over a longer time frame,it will totally change how capital markets operate but also how individuals

295、choose to run and support their investment portfolios.”There are multiple potential advantages of tokenisation of both funds and underlying assets,using distributed ledger technology(DLT)as the foundation.Importantly,we make a distinction in the discussion here between tokenisation as part of a deli

296、very infrastructure and cryptocurrencies which may or may not have a valuable role to play.While some firms within the investment management industry are looking at funds that provide direct exposure to crypto,the real focus is on the infrastructure.This has the potential to generate significant eff

297、iciencies through the capital market delivery chain,from asset origination to investment fund operation,as well as a potential for greater transparency and liquidity in certain markets,notably private markets.“Im very confident that tokenisation has a significant part to play for two key reasons.Fir

298、st,it allows customisation of risk exposures in a way that cant be done today.The ability to tokenise assets and to compile portfolios in a different way has to be a good thing in terms of client access.The second is in the book of record.You compare and contrast the ease of that blockchain technolo

299、gy relative to all the complications in terms of custodians,beneficial ownership and mutual fund wrappers.Ultimately,the client experience can be cheaper,and will be better.”Development internationally is seeing a focus on both capital marks and funds.Through late 2022 and into 2023,there were multi

300、ple experiments internationally in digital bond issuance.These proof of concepts,when paired with greater legal clarity in some jurisdictions,have now made tokenisation a reality.There are now emerging use cases within investment products,with numerous examples of tokenised funds now operating acros

301、s the globe,bringing the benefits of DLT to end investors,and furthering the debate about how investment firms will deliver investment solutions to consumers in the future.THE INVESTMENT ASSOCIATION38TOWARDS A MUCH MORE CUSTOMISED PRODUCT SET?For some firms,the debate has gone further still with the

302、 question of whether the traditional concept of the investment fund itself may now be challenged by a combination of societal preferences for customisation and a delivery infrastructure that can accommodate this securely and at scale.This would,in effect,see the extension of Separately Management Ac

303、counts(SMAs)widely used today in the US at an industrialised scale.However,there is no consensus about whether Investment Fund 3.0,as the IA has called the concept,will go this far,or whether DLT is needed to deliver it.For some firms,it would be delivered using more flexible building blocks such as

304、 ETFs in combination with more modern portfolio construction and distribution technology.For others,DLT and tokenised funds represent the way forward.“The challenging part is how do you run custom portfolios in very small pots,at scale,for large numbers of retail investors,creating hyper granular po

305、rtfolios and matching that to really specific tailored needs on the customers side?Marrying that in a way that is true to label is a really intensive heavy duty data challenge.Most of the industry systems as they stand today dont allow you to do it,but that is where the ball is headed.”“Eventually,w

306、ere going to see much more customisation.I want to have a set of stocks,that reflect my own personal wishes and as the manager we have to be able to provide that somehow.The answer to that question is a combination of ETFs and technology.You cant do it in a mutual fund.”Whatever the precise shape of

307、 Investment Fund 3.0,and whatever the technology that ultimately powers the manufacture process,there does seem to be a consensus that the net result will be a much greater focus on the value of the investment management component through the lens of the investment IP in other words,how portfolios a

308、re constructed and risk is managed.“Our content will remain our content.Tokenisation is about facilitation and delivery.”In sum,it seems clear that AI,DLT and consumer interactivity could converge to change the relationship between the customer and their portfolio,increasing participation and alteri

309、ng the nature of delegation to a professional investment manager.All of this will rest also on the ability better to bring together a whole range of wider preferences in a package that is understandable and totally transparent.“The importance of understanding evolving client expectations whether you

310、re talking about institutional or indeed,whether youre talking private investors;the requirement to demystify;the requirement to,wherever possible,customise,and show the potential to make returns within a prescribed volatility path,within a given liquidity,for a given fee rate,with sustainability cr

311、edentials.Thats what future success must look like.”OPERATIONAL RESILIENCE AND EMERGING TECHWith emerging technologies poised to reshape the underlying operating models of firms,as well as the broader financial market infrastructure on which they rely,wider resilience considerations clearly arise wi

312、th that reshaping.The potential sources of disruption and vulnerabilities will likewise evolve and are already doing so.The implication is that current mapping of a firms people,systems and processes could soon become outdated.Firms are now working at pace to ensure their future operating models are

313、 resilient by design,and it will be important that resilience teams are embedded into technology change projects and innovation drives going forward.As of today,there is a particular focus on two areas in particular:the accelerating importance of third-party technology providers and the increase in

314、cyber risk.Neither of these are unique to investment management nor even financial services.However,the scale of client assets under management and the global inter-connectedness of investment management firms with others in the FS sector means that resilience is a preoccupation for both individual

315、firms and regulators.39INVESTMENT MANAGEMENT SURVEY 2022-23|THREE KEY THEMES THAT WILL SHAPE THE UK INDUSTRY2Role of third-party technology providers The financial services industry is increasingly reliant on third party technology providers which are underpinning operating models.There are numerous

316、 benefits,as well as risks,inherent to such arrangements.These providers offer services at scale,which drive capability,efficiencies and scale in a number of business areas.Examples of services provided by third party technology vendors include cloud computing;data centres;information,communication

317、and technology(ICT)services;software;information streams;and,increasingly,artificial intelligence capabilities.From an operational resilience perspective,outsourcing and third-party service provision changes the firms risk profile,and in many cases results in greater resilience.At the same time,it c

318、an pose risks that need to be managed.Firms relying on third parties need to be able to demonstrate that they are effectively managing the risk of disruption and harm to their customers and end consumers.However,there are numerous challenges involved in forming assessments over third party providers

319、 resilience in adequate detail.Driving improvements in this area is likely therefore to be an area of focus over the coming years.Similarly,the growing importance of technology providers from outside of the financial world is creating new potentially systemic risks that firms and supervisory authori

320、ties must manage.To address this trend,proposals are afoot in both the UK and the EU to manage the systemic risks that disruption at a third party providing key services to multiple firms could cause.In the UK,the FCA,Bank of England and PRA published a Discussion Paper regarding Critical Third Part

321、ies(CTPs)to the finance sector in July 2022.The DP contained proposals that are intended to manage the systemic risks presented by large technology providers to the BoE,PRA and FCAs objectives of UK financial stability,market integrity and consumer projection.The proposals are likely to capture majo

322、r cloud service providers and other technology providers.The proposals will complement the regulators UK Operational Resilience Rules.They are motivated by HMTs assessment that the regulators current powers are not sufficient to tackle the systemic risk that disruption at a third party providing key

323、 services to multiple firms could cause.These proposals involve designating certain entities outside of the regulatory perimeter as critical to the sector and introducing minimum resilience requirements and direct regulatory supervision of their services to FS clients.Cyber threatThe risk of disrupt

324、ion stemming from cyber-attacks is a persistent serious threat to the industry.What marks cyber out as unique in the catalogue of the many sources of potential disruption is the speed and scale at which incidents can play out,and the fact that such incidents are perpetrated by malicious actors inten

325、t on deliberately causing harm.Significant incidents this year such as the Log4J zero-day vulnerability,the MOVEit vulnerability and a ransomware attack that interrupted derivatives trading for around one week,demonstrate the extent and reality of the cyber threat faced by the industry.They also und

326、erline the need for firms to not only maintain constant vigilance and a focus on cyber hygiene,but further develop incident response plans should the firm need to protect their staff and clients and help to recover critical activities,systems and data affected by cyber incidents.This is a growing ar

327、ea of resourcing and activity across the industry,with support from regulators and external agencies such as the National Cyber Security Centre(NCSC),the Connect Inform Share Protect(CISP)platform the Joint Cyber Defence Collaborative and the FCAs Cyber Coordination Groups.THE INVESTMENT ASSOCIATION

328、40EVOLUTION OF RESPONSIBLE AND SUSTAINABLE INVESTMENT Sustainable and responsible investment(SRI)continues to be a dominant theme for the investment management industry,regulators and customers.There is little doubt among those we spoke to for the IA Survey or across the industry more broadly that r

329、ecognition of the realities of climate change for the global economy,and engagement to mitigate and adapt to those changes,will remain a central focus for investment management firms.However,the near-term outlook from a product and broader investing perspective has become more challenging.We focus o

330、ur analysis on three themes:Client behaviour and the impact on flows to responsible and sustainable investment funds The interaction of current economic and political developments with the ESG momentum of recent years Evolving regulatory expectations,especially around data and disclosureCLIENT BEHAV

331、IOUR,PERFORMANCE AND FLOWThe performance of SRI strategies,both in terms of attracting new flows and generating returns,was particularly strong through 2020 and continued to grow through 2021.Two features of 2022 in the funds market have dampened that positive narrative:As inflation pressures have i

332、ntensified and interest rates were raised,flows to SRI funds in the UK have tapered,partly reflecting the same cost of living concerns that have adversely impacted flow across the funds market.However,the extent of the retrenchment is less marked,suggesting that SRI flow does remain stickier in the

333、retail market,as well as in institutional.Relative performance has been impacted by weaker performance in the tech sector and stronger performance in oil and gas,aerospace and defence stocks.Despite the recent strength of commitment among investors to SRI funds,there is evidence from IA consumer research as well as other research that financial objectives continued to outweigh non-financial object