UK fund manager must look to cost containment measures such as outsourcing and alternative distribution channels as revenues slide for the first time in five years, says PricewaterhouseCoopers.
Revenues earned by UK fund managers during 2001 fell by 5.5% even though pricing remained steady, according to the latest update of the Annual 2001 Investment Management Survey by PricewaterhouseCoopers.
Following the stock market declines and the events of 11 September overall margins declined from 32% to 28% in 2001, but fund managers managed to hold costs at broadly the same level as the previous year. Survey participants who realised the largest savings over the year had, or are implementing, both tighter management of investment spend in the short term and enhanced financial planning including better management information and scenario planning.
Ian Hards, partner, PwC Consulting, believes the pressure on profitability, and in particular on revenue, is likely to continue as increased uncertainty and volatility affect the three main external drivers of profit: stock market levels, receipt of net new money and pricing pressures.
“While fund managers had some success in controlling their costs, the cost:income ratio rose to 72%," he points out.
Remaining challenges for fund managers are to respond more strategically to the cost issues and to find ways of safeguarding their revenue stream. "Fund managers may wish to develop strategies around outsourcing, defined contribution pensions and changing distribution channels," says Hards.
The PwC survey covers a large representative sample of the investment management industry in the UK and Ireland. This latest update of the survey was carried out in February 2002 and covers 18 firms with £940 billion of assets under management.