By Staff Writer, Hedge Fund Insight
The latest CBI/PwC Financial Services Survey has just been released. Paula Smith, PwC’s UK asset management leader, said:“Investment managers are more optimistic due to strong improvement in revenues and profitability, with the latter increasing for the sixth consecutive quarter. Firms continue to benefit from the comparative stability of financial markets, as well as the year-long recovery in equity values.“
Hedge Fund Insight has isolated four areas for comment – they are highlighted in the extract from the survey below.
The recovery in asset markets and in the businesses of UK asset managers has got to a point where the managements have some free choices of where and how to expand. The firmest conclusions from the survey of 8 firms of UK-based asset managers relate to marketing and staffing levels.
The CBI/PwC Financial Services Survey reports on a balance of respondents basis. So when the overall response to the question “do you expect to authorise more or less marketing in the next 12 months than you did in the past 12 months?” is +95 it means that just over 97% were positive and 2-3% were negative. A year ago the answer to this marketing spend question was very negative, and is now about as positive as it can be. So marketing spend by UK asset managers is highly likely to go up.
The largest cost to an asset management business is in employees, and fee income mostly varies with market levels in the short run. Managements of asset management businesses tend to hire with a multi-quarter lag to their own profitability when they have the choice. And the survey results clearly show in question 6 that there will be hiring – all 8 respondents to the survey said that they expect their headcount to go up in the next 3 months. This may not be strategic hiring though, or even entirely voluntary, as the response to question 6.1 shows a pick up in staff turnover in the last three months. But whatever the motivation, headcount is expected to go up in short order.
Parenthetically, whilst to some extent the c-suite executives of UK asset management businesses are on the front foot in their collective ability to make strategic choices, they are not necessarily thinking of expanding further at home. The responses to Q.4 show a significant bias towards doing more business overseas in the period ahead. In which case at least part of the extra resources added to marketing spend and headcount will be for broadening or deepening the business conducted outside the UK.