Optimism rises for investment managers as profitability recovers

●  Investment Managers report increase in business volume and profitability over last three month

● Optimism continues to grow in sector following major dip at onset of pandemic

●  Digital transformation seen as main focus of disruption as ESG becomes strategic imperative

Sentiment among investment managers is more positive than it was three months ago as profitability in the sector begins to show signs of recovery, according to the latest CBI/PwC Financial Services survey.

The quarterly survey, conducted between 1-19 September, reveals a mixed picture across financial services overall. However, within investment management, business leaders reported growth in business volume and profitability over the last three months.

There is an increase in the number of investment managers who have seen an increase in volumes over the last three months, reversing a dip in the previous quarter, while a majority also saw an increase in profitability. This more positive assessment led to an overall increase in optimism relative to the previous quarter and highlights an improving sense of momentum following a dip in March when the COVID-19 pandemic emerged.

With the pandemic continuing to have an impact on financial markets, the increased volumes and profitability come as more savers switch from deposits to investment plans, boosting growth in assets under management.

Investment managers expect the positive performance in the third quarter to continue over the next three months. However, the combination of mounting economic stresses and changing stakeholder expectations point to further turbulence ahead.

The survey also highlights a desire to further strengthen operational agility and resilience. This will likely be achieved through an acceleration in the deployment of digital technologies, against a backdrop of changes in customer preferences and behaviour – with larger companies more likely to be able to respond to these changes by upgrading technology and launching new products and services.

The report also finds that credit risk is likely to rise as government support for businesses and jobs is gradually scaled back. The report notes the importance of monitoring portfolio exposures closely - for example, some currently troubled businesses could rebound at the point when COVID-19 restrictions are eased, but the pandemic could also accelerate structural shifts such as the impact on real estate investments as retail becomes ever more digital and remote working reduces demand for office space.

Commenting on the findings, PwC UK Asset & Wealth Management leader, Elizabeth Stone said:

“It is encouraging to see an increase in optimism from investment managers, alongside reported increases in volumes of business and profitability.

“We know that the Asset and Wealth Management sector has not been as deeply affected by the economic fallout from COVID-19 as many other consumer-facing industries, however improved confidence – provides a degree of reassurance that the sector is weathering the economic storm wrought by the pandemic.”

Planning for the future

The September survey includes an expanded set of questions, which reveal more about the priorities for investment managers across a number of areas. For example, the acceleration in digital transformation ranks alongside COVID-19 and changing regulation as the main drivers of disruption over the coming 12 months.

Advances in artificial intelligence (AI) and data analytics were identified as opportunities to strengthen efficiency, while cloud adoption could provide increased agility - however, fewer than one third of investment managers report having achieved full implementation.

The new questions also reveal that strengthening operational resilience is at the top of investment managers’ transformation plans, while the growing threat of cyber attacks remains lower down the list of priorities.

Upskilling staff is more of a priority than recruitment, while almost two-thirds of investment managers report that diversity and inclusion forms part of their business objectives, behind FS as a whole (80%).

The survey also finds that nearly three-quarters of investment managers view Environmental, Social and Governance (ESG) issues as a strategic imperative, which should align with their business purpose, rather than simply a compliance requirement.

Elizabeth Stone added:

“The new questions in our survey provide valuable insights into how investment managers are dealing with disruption now, and their plans for transformation ahead. While assets under management will continue to grow, some firms are in a better position to capitalise than others. Those out in front are harnessing artificial intelligence, data analytics and agile cloud capabilities to get closer to customers, target emerging investment opportunities and better understand their exposures. And they’re building these capabilities around the firm foundations of talent development and operational resilience.

“We are also seeing an increased focus on ESG among investment managers with all participants either incorporating or planning to incorporate ESG into their business objectives. Given societal trends, ESG will only grow in prominence and importance over the longer term in relation to securing and sustaining mandates.”

Contact us

Follow us