1999 was a good year for UK fund managers but the industry faces a number of challenges, according to a report by PricewaterhouseCoopers. Pursuing Profitability surveyed 26 UK managers with a total of over £1trn (e1.7trn) under management and between them profitability rose slightly with average margin on revenue up nearly 30%. Pricing pressure persists and UK institutional business was worst hit, down 6% in the year, due largely to the popularity of passively managed funds.
Pricing for retail products held up but the report warns managers may lose revenue due to new distribution channels. Headline costs improved in the past year and front office costs are down and helping profits. Salaries account for up to 60% of a fund management firm’s costs and, despite increased use of IT, the number employed by fund managers rose 2.5% annually.
The industry is undergoing structural change. Mergers, acquisitions and alliances are integrating the industry horizontally. The report talks of a polarisation between manufacturers of investment products and those distributing the products in the market. Report says the most graphic evidence of unbundling is the launch of numerous fund supermarkets.
Fund management is moving from a series of vertically integrated businesses into a network of specialist units including product manufacture, client management and operational delivery. Managers increasingly need to distinguish themselves from their competitors, improve relationship management with clients, suppliers, distributors, regulators and even competitors says the report.