UK asset managers facing ‘exceptionally high’ regulatory uncertainty

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Optimism has risen in the UK asset management industry for the fourth quarter running although firms remain “exceptionally” concerned by the impact of regulation on their business.

The Confederation of British Industry and PricewaterhouseCoopers’ financial services survey shows a net 30 per cent of asset management firms became more confident about their overall business situation in the final quarter of last year.

The sector’s optimism rose in each quarter of 2012. The last time sentiment fell was in December 2011, when a net 33 per cent of respondents said their optimism had dropped over the previous three months.

Almost one-third of fund managers report their business volumes as being below normal, although close to one-quarter are seeing increased offshore activity. However, a net 41 per cent say volumes improved over the most recent quarter and 41 pe cent expect them to improve further over the coming three months.

Robert Mellor, hedge fund practice leader at PwC, says: “Investment managers remain remarkably optimistic. Overseas business is growing, but it remains to be seen if predicted retail growth will materialise.

“In the current environment of economic uncertainty, but comparatively stable financial markets, it will be interesting to see if retail sales can improve on 2012’s disappointing figures. The first quarter of 2013 will be crucial if the sector is to justify the strong optimism that has been its hallmark throughout 2012.”

But regulation remains a factor that asset managers think could hold their business back. Some 91 per cent of firms cited statutory legislation and regulation as something that will limit their ability to grow business in the next 12 months.

Furthermore, 60 per cent of fund management houses expect to spend more on regulatory compliance over the coming year.

“Regulatory uncertainty is exceptionally high and is seen as a barrier to growth by 91 per cent of respondents; a striking response and the highest figure in more than 20 years of survey data,” Mellor says. “The sector also faces a particularly high level of uncertainty over the impact of new regulations.”

Mellor pointed out that the industry is still waiting to see how RDR will affect their business while the final implementation of the alternative investment fund managers directive is “frustratingly unclear”. In addition, emerging concerns include how the EU’s proposals on shadow banking will affect UK asset managers.