The UK’s fund management sector is experiencing a seismic shift as data reveals a significant downturn in fund launches for 2023.
Cash products drive investors away
The number of new funds introduced in the UK has hit a 20-year low, standing at 397, down 25 percent from the previous year and marking the lowest figure since 2003.
This downturn in fund launches is attributed to a combination of volatile markets and the allure of high returns from cash products, which have been intensified by soaring interest rates.
Impact on Asset Managers and rise of passive funds
As investors grapple with higher living costs and surging interest rates, a substantial amount of money has been rapidly exiting investment funds. Over the last ten months leading up to October 2023, investors pulled a staggering £37 billion out of funds, exacerbating the challenges faced by asset managers. This trend follows the record-breaking outflows of £50 billion in 2022, creating a challenging environment for investment management firms.
The aftermath of this exodus has put pressure on asset managers, compelling them to reevaluate their strategies. The surge in popularity of passive funds, coupled with downward pressure on fees and increasing regulatory costs, has prompted a wave of cost-cutting measures within the industry. Major players like Jupiter and Abrdn are undergoing significant restructuring and cost reduction efforts to fortify their positions in the face of these challenges.
Portfolio diversification is key
Doug Abbott, the Head of Wealth UK Client Group at Schroders, suggests that the shift in inflation and interest rates is reshaping investor perspectives on portfolios. In response to the evolving economic climate, many investors are strategically allocating their assets towards cash investments. While UK inflation has shown signs of easing, dropping from 6.7 percent in September to 3.9 percent in November, Abbott emphasizes the importance of considering global dynamics.
Long-term structural trends, such as demographics, deglobalization, and decarbonization, indicate that inflation is likely to remain higher than the past decade. Abbott advocates for a prudent approach to investment, recommending diversified portfolios across various asset classes to navigate the uncertainties of the evolving global environment.
Transformation in investor choices
In conclusion, the plummeting number of UK fund launches, driven by market turbulence and the attractiveness of cash products, reflects a broader transformation in investor behaviour. The consequences ripple through the asset management sector, impacting companies’ strategies and pushing investors towards passive funds. As the industry adapts to these challenges, prudent portfolio diversification emerges as a crucial strategy for investors navigating the ever-changing landscape of global finance.