Investment managers are increasingly confident on the back of rising business volumes and fee incomes, according to the new CBI/PwC Financial Services Survey.
Managers surveyed said their sentiment about the overall business situation had risen in spite of flat profitability following two quarters of strong growth.
Although sentiment rose for the 10th consecutive quarter, it was the weakest pace seen since December 2011.
“Investment managers are upbeat about their prospects after a steady performance during the last quarter. Growth in business volumes and fee income is expected to continue over the coming months. Growing risk appetite is expected to boost activity with both retail and wholesale investors,” said Paula Smith, PwC’s UK asset management leader.
Business volumes increased for a third quarter in the three months to June at a pace that was the strongest since March 2013. This growth was mostly attributed to rising demand from industrial & commercial companies, financial institutions and particularly from overseas customers, although business with private individuals was flat. Total business volumes are expected to expand at a similarly robust pace in the coming three months, said PwC and CBI.
Employment increased at an above-average pace for a seventh consecutive quarter and is expected to rise at an even faster pace in the coming three months.
Although profitability was flat during the quarter, the survey found that strong increases in business volumes are expected to outweigh higher costs in the next quarter.
Income from fees, commissions and premiums rose for a third consecutive quarter, albeit at a slower pace than the “exceptionally high” pace in the previous quarter. As expected, income from net interest, investment and trading fell for a second quarter. Respondents expected revenue from both sources to grow in the next quarter.
Despite increasing optimism, the survey found that level of demand would continue to be an above-average barrier to expansion of business over the next year. Respondents said that competition, legislation and regulation were also the principal constraints on business expansion over the next 12 months, with spending on regulatory compliance also expected to increase, even if somewhat less strongly than before.
In light of this, investment managers said that new products and services were increasingly important in their growth strategies.
“This reflects increasing investor demand for low-fee products such as exchange traded funds,” said Smith. “Investment in new post-retirement products could also grow over the coming quarters.”
She added that interest in international expansion as a source of growth continued to rise, which was matched by “increasing interest in M&A and a continuing focus on strategic partnerships.”
“The importance of recognised brands when entering new markets is only likely to grow. Investment managers will be hoping that inflows to European equities continue.”