Demand for passive funds drives assets under management to record highs
The UK investment management industry reached “record highs” in 2024, boosted by demand for low-cost products and overseas interest in UK assets.
Tracker net sales surged for the third consecutive year, as investors increasingly look towards low-cost products and passive investments. In contrast, active sales tumbled, according to the latest report from the Investment Association (IA).
Active funds have consistently failed to outperform their benchmarks in recent years, making it difficult to justify the significantly higher fees than those placed on passive funds.
Leading wealth managers saw their AUM’s nudge up across 2024 due to the growing popularity of tracker funds, with Schroders recording a four per cent increase to £778.8bn due to the growing popularity of passive investments.
Wealth manager Quilter also saw its AUM increase 12 per cent to £119.4bn. Low cost-index products made up 26 per cent of funds under management in 2024.
Net retail inflow rose to £28bn, more than 50 per cent higher than the previous record of £18.4bn recorded in 2020.
Indexing strategies, a form of passive investment which aims to reflect the performance of a specific index, are also steadily gaining popularity in the UK, reflecting the demand for lower-cost investment options.
They reached their highest level in 2024, accounting for 35 per cent of the total UK industry AUM.
The acceleration is likely to have been driven by the expansion of the European exchange-traded funds (ETFs) market, making passive investment more accessible for consumers.
Overseas client growth
Assets managed on behalf of overseas clients surpassed over half of total assets for the first time, accounting for 51 per cent and making up £5.1 trillion of AUM.
Overseas client assets have more than doubled over the past decade, growing at a faster rate than UK client assets.
UK investment firms managed £990bn of assets for North American investors and £740bn on behalf of Asia-Pacific clients.
Assets managed for Latin America clients were the fastest growing, increasing by 40 per cent to reach £70bn.
The IA expects positive global investor sentiment towards the UK to continue and that it will be critical to its continued success.
Bouncing back
The industry recorded 10 per cent growth in total assets under management (AUM) to a new peak of £10 trillion, up from £9.1 trillion in 2023.
The growth reflects a strong market performance, with the industry bouncing back to surpass the previous record levels of 2021.
Chris Cummings, chief executive of the Investment Association, said, “The UK investment management industry has reached record highs over the past year, a testament to firms’ resilience amidst geopolitical and economic uncertainty.
The rise also reversed the sharp AUM fall experienced by the industry in 2022, dropping to £8.2 trillion, as high inflation and the Bank of England’s rising interest rates throughout the year negatively impacted growth.
UK funds under management (FUM) rose 5 per cent to £1.49 trillion.
Spearheading government campaign
Assets managed on behalf of retail investors made up 28 per cent of AUM.
Cummings said, “The UK government’s recent efforts to boost domestic capital through the Leeds Reforms signal a powerful alignment between the government, regulator and industry.”