UK – Fund managers in the UK suffered a 5.5% drop in revenue last year, the first decline for five years, even though their pricing remained steady, says the latest update of the PricewaterhouseCooper (PWC) annual investment management survey.

Margins also fell, from 32% in 2000 to 28% in 2001, though many managers had some success in controlling their costs. The cost / income ratio rose to 72%, just 4% more than during the previous year, the survey finds.

The survey suggests that the pressure on revenue and profitability is likely to continue, fuelled by stock market levels and pricing pressure.

In particular PWC highlights the introduction of FRS17, the problems of a low inflation/low growth scenario and the continued retail savings pricing pressure as key areas to watch for. FRS17 is speeding up the rate at which pension funds are switching from defined benefit to defined contribution structures, says the report, and this could mean reductions in the absolute levels of funds, as DC attracts lower contribution levels.

PWC says that in a low inflation / low growth environment, actuaries expect a continued shift from equities to the relative safety of bonds, as trustees and employers begin to re-evaluate their funds’ investment strategies. In particular, the events of September 11 and the subsequent market volatility mean that assumptions about equity returns are being revised.

The government’s continued pressure on retail savings pricing could transform the way investment products are distributed, PWC claims.

PWC believes that fund managers now need to develop strategies around outsourcing, DC pensions and changing distribution channels in order to safeguard their revenue streams. Moreover, the key to getting through the current uncertainty in the markets is to invest “wisely” now to protect long-term future profits, PWC suggests.