UK - Fund managers should brace themselves for profit margins waning by almost half should current market trends continue, according to research by PricewaterhouseCoopers (PWC).
PWC’s 2001 UK investment management survey, ‘Pursuing profitability: all step forward …’, cautions investment houses that long term market volatility could result in margins stooping to around 15% this year, with 20% of fund managers potentially posting an overall loss.
The latest report urges competing fund managers to take collective action to address what it calls “industry-wide issues”.
Graham Wright, a partner with PricewaterhouseCoopers, said:
“For the first time in years, fund managers are facing a ‘double whammy’ of markets and pricing in simultaneous decline. This takes us into a new era, where profits will be much more difficult to maintain.
He added: “It seems a distant memory, but markets were actually higher in 2000 than 1999, so fund managers were last year still reaping the benefits of record market levels in their income - especially those with technology funds with performance-related fees.
“If current trends continue one fund management company in five will report an overall loss.”
However, the report found that IT spend fell during 2000 due to discretionary project spend being challenged during the second half of the year as more pessimistic forecasts emerged.
The survey also highlights the importance of economies of scale to realise efficiencies. In many cases the scale has been increased through recent mergers and acquisitions, said the report. But the industry remains “highly fragmented” with the trend towards specialisation to maintain revenue levels directly opposed with the simplicity and consistency that scale economy demands.
Wright added: “Fund managers have enjoyed tremendous growth, but they now need to face up to some fierce challenges in the immediate future, many of which will be best faced together.
“Good profits are still available in this market, but only for those who are very clear about their proposition.”
*The 13th 2001 PricewaterhouseCoopers Investment Management Survey covers a large representative sample of the investment management industry in the UK and Ireland. A total of 23 fund management organisations, with combined assets of over £1,100bn, responded. All data in the survey related to performance in the calendar year 2000.
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