After a tough decade and a once-in-a-generation change in bond yields, asset managers have struggled to keep up with the pace of change. But rather than giving the industry a moment to adjust, the Labour government has added to the pressure.
Growth push
Facing a tough outlook not only for the economy but also for the public finances, the government is focused on pursuing growth policies.
The pre-election mood music with its talk of productive finance has only ramped up since Labour won the election in July last year.
While the government has not mandated inward investment, there are heavy hints the industry needs to play its role in providing funding to enhance economic growth.
Auto-enrolled workplace schemes are starting to embrace the idea of moving beyond passive equities and into private assets with the number of LTAFs available increasing.
Against a difficult backdrop, the maturing of workplace pension schemes is a ray of sunshine.
With assets in these schemes forecast to reach £1tbn by 2030, these schemes are the most rapidly growing store of UK wealth – which should represent an opportunity for managers.
Amalgamation amped
Not only have the government ramped up the conversation about productive finance but it has also increased its pressure on the industry to consolidate.
At the PLSA’s investment conference in Edinburgh, the pensions minister Torsten Bell said he expected all LGPS assets to be managed within pooled, FCA-authorised structures by March 2026.
While few in the industry believe this to be a realistic time-horizon, the direction of travel is clear – the government wants to accelerate its plans to create larger pools of capital capable of investing in the UK.
The long-term aim is for the LGPS pools to not only be larger but also to be more professionally run. As this happens, the pools will have the resource to run more of its own assets in house, potentially squeezing our asset managers.
Workplace consolidation
It’s not just the LGPS where the government would like to see greater degrees of consolidation – they also want this to happen in auto-enrolled workplace schemes saying the minimum assets under management should be £25bn.
There is currently only a handful of master trusts of this size but both further growth and consolidation is likely to result in more schemes reaching this size.
Just as with the LGPS pools, as these master trusts become larger, it will become more economical for these schemes to use in-house teams reducing the opportunities for external asset managers.
Master trusts are not the only providers of workplace schemes – many insurance companies provide contracted-out schemes and these are likely to grow.
It’s currently hard for asset managers to work with these schemes as much of the management is done in-house. But opportunities for specialist funds are likely to increase as the size of the assets managed grows.
It’s not only the LGPS and auto-enrolled workplace schemes which are evolving – so too are closed defined benefit schemes. The next post will examine the implications of the buy-out and run-on debate for asset managers.
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