General update July 2024

With the continued relatively high interest rate environment and subdued market confidence, the challenges affecting the UK and European asset management industry have persisted.

In the UK, deep discounts to net asset value have precluded the ability for many closed-ended funds to raise fresh capital. Whilst there are some suggestions of a potential improvement in sentiment, the initial public offering (IPO) market for listed funds remains largely closed. Special Opportunities Real Estate Investment Trust recently pulled its planned IPO after failing to meet its minimum fundraising level. This would have been one of a handful of listed funds to have launched in the last three years. Rather than new listings or secondary issues for existing funds, the trend has very much been for fund mergers (usually effected through section 110 Insolvency Act schemes) or voluntary liquidations with an overall contraction in the sector. For example, at the end of June, the UK’s largest investment trust merger was announced with the combination of Alliance Trust and Witan to form Alliance Witan, with net assets of around £5 billion.

However, if the long-awaited improvement in market sentiment appears and interest rates start to trend downwards, we can expect to see an uptick in activity in the sector particularly if there is further stabilisation of asset prices in key asset classes such as commercial real estate and logistics.

In the UK we just had a general election. It will be important to the sector that an incoming government address some of the thematic issues that have affected the listed fund sector historically. This would include resolving the investment company cost disclosure rules (which we have addressed in a prior edition of this publication). 

The AIC (Association of Investment Companies) has highlighted a number of reforms that the incoming government must, in its view, address given the key role that investment funds play in UK public markets. In addition to regulatory reform, initiatives should also focus on reinvigorating equity markets. It will remain to be seen whether the FCA’s planned listing rule changes due to be implemented later this summer and prospectus reforms will have the desired impact.

In terms of regulatory developments, on the whole investment managers have reacted positively to the latest FCA guidance on anti-greenwashing rules which are part of the Sustainability Disclosure Requirements (SDR) and investment labelling regime (albeit that some have complained about an overall ESG fatigue and there has also been some lobbying of the regulator to give clearer guidance of its principles-based approach). The rule requires all FCA-authorised firms to be able to substantiate sustainability claims when communicating with clients about products and services, and to ensure these claims are fair, clear and not misleading. The FCA recently stated its view on the use of artificial intelligence (AI) by asset managers and said that, whilst appreciating the growing feature of AI in investment managers’ businesses, they were not minded to jump in with detailed additional rules at this stage.

In more general terms, the UK and European asset management industry continues to face strong headwinds. Continued asset outflows, challenging market conditions and the high regulatory burden have put considerable pressure on profits, leading many firms to either pursue cost cutting measures or consolidation strategies.  This has been compounded by structural shifts within the industry such as the move away from active to passive management and an uptick in individual fund manager departures.

Following on from the above, we have seen continued M&A activity in the sector with a number of deals announced in the first 6 months of 2024 including the acquisitions announced in June by Mercer for UK and Dutch pensions advisory and investment management firm, Cardano.

Finally, in this edition of Global Asset Management Review we have 14 articles from around the world covering various developments impacting the asset management industry. For our coverage of Europe and the UK we include a couple of articles on ESG related developments including the new final guidelines from the European Securities and Markets Authority on ESG and fund names. We also discuss the impact of tokenisation on private funds and the suitability test under ELTIF 2.0. For the Asia Pacific region, we provide a re-cap of Hong Kong’s open-ended fund companies regime. For the United States, we highlight some of the key developments from our new Regulatory Intelligence newsletter. Rounding off the international coverage is an article from Canada focussing on the modern slavery act and what it means for private equity and venture capital.