Fund managers ‘optimistic’ but regulation remains a drag

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The UK investment management industry is growing increasingly optimistic, research suggests, as the sector’s revenues and profitability continue a run of improvement.

According to the CBI/PwC Financial Services Survey, business volumes in the asset management sector grew “robustly” over the second quarter of 2013, making it the fourth quarter running that growth has been reported. Profitability also rose at one of the fastest rates in the survey’s history.

However, fund managers expect this growth to ease in the third quarter of the year. Growth expectations are at their lowest since December 2011, although the industry still expects to expand over the next three months.

PricewaterhouseCoopers’ UK asset management leader Paula Smith says: “Investment managers are more optimistic due to strong improvement in revenues and profitability, with the latter increasing for the sixth consecutive quarter. Firms continue to benefit from the comparative stability of financial markets, as well as the year-long recovery in equity values.”

The research also suggests more firms are gearing up to launch new funds in the months ahead. When asked where they see growth coming from in the next quarter, 40 per cent cited new products – up from 5 per cent at the end of the previous quarter and from just 1 per cent at the start of 2013.

However, 41 per cent of fund managers said regulation will likely limit their ability to grow over the coming 12 months. Asset managers expect to spend an average of 83 per cent more on regulatory compliance in the next year.

Smith says: “Despite the gradually improving clarity around supervisory changes, investment managers think regulation is the biggest obstacle to the sector’s growth. The proposed EU bonus cap is of particular concern with investment managers expecting the proposal to make staffing costs less flexible and increase difficulty in retaining talent.”