Will asset managers shun the UK following Brexit? Spence Johnson's Magnus Spence argues that looking at the numbers, this is unlikely.
If they are at all driven by the numbers that we supply here, asset managers should not consider any such move. The UK is - by a long way - the largest institutional investment market in Europe using the definition of the market that we believe to be most relevant.
Leaving the UK would be an act of commercial self-harm for asset managers.
There are some €18.5tn (£15.6tn) of institutional assets in Europe (EMEA as a whole is €20.9tn). By institutional assets we mean pension funds (defined benefit, defined contribution and those in-between), insurance general account assets, sovereign wealth funds and other institutional assets such as charities, foundations and so on.
As we show in the first chart, we believe that the UK represents 23 per cent of these European institutional assets, and is therefore the largest location of institutional assets in the region.
The UK economy represents only 18 per cent of the EU in terms of GDP, so the UK is over-represented as an opportunity for asset managers using this macro number.
We look at these macro numbers as part of our day-to-day work collecting and reporting in great detail on the flows of institutional assets around Europe (and elsewhere in the world) for Institutional Money in Motion.
Opportunity knocks
But the 100 asset management members of iMiM are less concerned with the macro total market size. What they really want to know about is the addressable element of the market - the opportunity for them consists of those assets which are not managed internally (or by an affiliate) and are being invested by third-party managers.
The addressable institutional opportunity in Europe in these terms is 34 per cent of the total described above (€6.3tn or €7.5tn for EMEA as a whole). Of this addressable institutional opportunity, the UK represents a very high proportion: 41 per cent.
The UK in other words represents a larger addressable institutional market opportunity for asset managers than Germany, France, the Netherlands and the Nordic countries all added together.
There are many reasons for this, which we don’t have space to describe in detail here. But a leading factor is structural: UK institutional assets are held in more fragmented, smaller, pools than is the case elsewhere in Europe, so they tend to rely more on external rather than in-house management.
UK remains important
Of course these national addressable numbers do not tell enough of the story adequately on their own to guide asset managers in their strategic decision-making.
They need to know the addressability of more micro product subsegments.
They also need to understand the degree of addressability: for example how many suppliers is there room for in each market - some markets are in reality much more addressable than others.
But even when the numbers are supplied to them at these more granular levels, the UK still often tends to reveal itself to be one of the leading destinations for asset managers as they hunt for opportunities.
So, would asset managers, who are constantly keen to develop new asset gathering opportunities, and constantly looking to build stronger client relationships, move themselves and their teams away from an institutional market of the scale of the UK? It seems unlikely.
The UK will remain a natural hub for institutional investment activity for asset managers in Europe for some time to come.
Magnus Spence is managing director of research consultancy Spence Johnson
