Investment management is the industry that connects millions of savers, who want to invest their money over the long term, with the companies, Governments and projects that need money for their own long-term growth and spending. That long-term growth in turn helps to generate the returns that savers will need to fund their retirement and meet their savings goals. So a pretty profound role in both the economy and society.
The UK boasts the second largest investment management centre in the world, after the US, managing over £5.5trn on behalf of savers; £3trn of this is for UK savers via a wide variety of arrangements. These include pensions, ISAs and investment funds.
The money is invested across a wide range of types of investment and geographical regions. While shares in companies, corporate and government bonds remain at the heart of investment, many firms have an increasingly diverse set of capabilities, such as investing directly in property or infrastructure projects. And the reach of these investments is global from Argentina to Australia, India and Mexico.
Recently, the role of the industry in the UK is rapidly changing in a number of ways. For many years, the investment manager was hidden from view because most savers tend to access investment products through insurance companies, or their defined benefit pension scheme is set up via their employer.
However, automatic enrolment, the shift to defined contribution schemes and the new pension ‘freedoms’ have now shifted responsibility and investment risk to individuals. This means people have to engage with their investments in a more proactive and direct way, giving the investment industry greater visibility, opportunity, and responsibility.
The industry is also becoming more visible through its role as a conduit of capital to the wider economy. Banks and governments are constrained in their ability to lend and borrow so ‘market-based’ finance is becoming a more attractive option. For example, asset managers account now for over 60% of new finance for social housing.
Also, since the financial crisis, there has been growing concern that insufficient attention is paid to the way companies are run and the decisions they make. Some have asked whether investment managers, who are providing capital to these businesses to help them grow, are being as effective as they can be in holding them to account.
The theme of shareholder responsibility is one the industry has taken seriously and this has resulted in a number of recent initiatives, including the commitment to develop an Action Plan to support long-term investment for productivity growth; and the establishment of a working group to bring forward proposals for a radical simplification of how company bosses are paid.
Andrew Haldane at the Bank of England has talked about an ‘Age of Asset Management’ emerging. He is right. The industry is set to become much better known and pretty quickly.
The Investment Association represents UK investment managers. They have over 200 members who manage more than £5.5 trillion for clients around the world, helping them to achieve their financial goals. Their aim is to make investment better for clients, companies and the economy so that everyone prospers.