A growing streak of independence

For the first time, after a leap in “standalone” ownership last year, most UK investment assets are run by independent houses, while mergers have helped to cut retail banks’ share of the pie.

One of the most striking elements of last week’s annual survey from the Investment Management Association (IMA) was the growing importance of independent fund houses. For the first time the association found that most British assets were run by “standalone” managers – groups not owned by life insurance companies or banks.

Diversified financial groups (classified as “other” by the IMA – see graph below) and independent firms have steadily increased their share of assets in recent years. Growth has been strongest in the latter category, and last year the proportion run by standalone fund managers leapt from 26% to 35%.

The share of assets managed by retail banks suffered a corresponding fall, in a shift mostly attributable to BlackRock’s purchase of Barclays Global Investors. The merger, which was completed at the start of December 2009, saw BlackRock increase its global assets under management to over $3 trillion (£2 trillion).

BNY Mellon’s acquisition of Insight Investment from Lloyds in November further weakened the influence of retail banks in the fund management arena. The deal took assets under management at BNY Mellon (categorised as “other”) to over $1 trillion.

Despite the skewing effect of these mergers, Richard Saunders, the IMA’s chief executive, hailed the figures as an acceleration of the trend towards autonomy. “Our survey paints a ­picture of an assertive, innovative and independent industry, now overtly global in its outlook and ambitions,” he wrote. (article continues below)

Adviser Fund Index (AFI) panellists, however, say the independence, or otherwise, of managers makes little difference in their selection process. Graham Toone, the head of investment research at AFH Wealth Management, relies on ratings agencies such as OBSR and Standard & Poor’s to carry out any due diligence on smaller groups, where infrastructure may be a concern.

“M&G arguably went through a revolution, as have Standard Life,” Cockerill adds. “We’ve seen Aegon going down the same route of giving managers more freedom. Legal & General have done it as well – they’ve realised that they’ve got some very talented people and, rather than constrain them within the parameters set by the big institutional parent, let them get on and do what they’re good at.”

Toone also singles out Standard Life. He uses the firm’s UK Smaller Companies Oeic, run by Harry Nimmo, and the Global Abso­lute Return Strategies fund. “Of the traditional life insurance companies, they’re the one that seems better placed to deal with the new environment, where fund management skills are a priority.”

Despite last year’s mer­gers, the IMA survey also found that the fund management ind­ustry “remains remarkably unconcentrated”, with the 10 largest firms accounting for just over half of total assets (see graph).

Just eight out of 123 groups had assets of over £100 billion in June 2009, with more than one-fifth of firms running under £1 billion.