Global markets

As the largest manager of UK pension fund assets, we’re using our expertise and scale to expand internationally.

Becoming a global investment manager

We’re making strides in our ambition to be a global investment manager

The decline in DB pensions in the UK has posed challenges for our UK fund management business and we saw fund outflows from our traditional DB business in 2014. With £709 billion of total assets, we’re one of the UK’s leading asset management companies. We have expertise in global fixed income markets and are at the forefront of developments in liability driven risk management solutions for DB pension schemes.

Global investable assets for the asset management industry could increase to more than $100 trillion by 2020.”

Asset Management 2020, ‘A Brave New World’, PwC, 2014

That means we can use our expertise to expand further into international markets, not only helping international DB schemes derisk their assets, but gearing up for growth in DC and index assets and managing international sovereign wealth funds.

The US business had a successful 2014, with another record year of fund inflows. We are entering our next phase of growth in the US, as we go into the DC market, build index capabilities and expand our fixed interest product and distribution strategy.

Accelerating growth in the US

In the UK, 72% of pension assets are still in DB. However, the US has moved to DC more quickly, with 58% of all assets now held in DC schemes.

Our purchase of Global Index Advisors Inc. (GIA) in May 2014 gave us the opportunity to start creating scale and distribution strength in the $6 trillion US DC market. In October 2014, we finalised the transition of our North American equity index assets to the US, where our team is now managing an additional $60 billion of index assets. This builds upon our existing LDI and active fixed income capabilities with DC and index growth strategies.

Opportunities in Asia and the Gulf

In Asia, we’re still on a journey to establish our presence in the region. In April we won our first Asian index clients, with two index mandates totalling $1.4 billion in assets. We’re developing our sales and marketing team in Hong Kong and late in 2014 we obtained a Type 9 licence from the Hong Kong regulator.

In the Gulf, although we saw lower levels of fund flows we’re successfully expanding our range of mandates and deepening relationships with our clients.

View of the Hong Kong centre (photo)

Building an Asian presence

PwC’s Asset Management 2020 report forecasts that by 2020 Asia could account for 16% of global funds under management, with assets in the whole Asia Pacific region projected to grow from $7.7 trillion to $16.2 trillion.

We’re building a presence in Asia from our Hong Kong office, which is strategically positioned to benefit from the expected growth in the Asian region. In December 2014, we obtained a Type 9 regulatory asset management licence.

MANAGING THE RISKS

Operational risk remains the principal risk for our investment management business. We continue to invest in our system capabilities, business processes and people to ensure that as we grow our business internationally we meet the expectations of all our clients, comply with regulation and mitigate the risks of loss or reputational damage from operational risk events.

Derisking pension schemes across the globe

Although derisking is still at an early stage in many countries, global liabilities on a buyout basis are estimated to be around $10 trillion. There are over $2 trillion of DB pensions assets in the Netherlands and Canada, two countries where less than 5% of funds are held in DC schemes. The US still has over $7 trillion of assets in DB schemes. We’re continuing to explore opportunities in the global derisking market. In the US especially, where pension scheme liabilities for the 100 biggest companies reached over $1.8 trillion at the end of 2014, companies and employee benefit consultants are increasingly looking to leverage our differentiated LDI capability.

FURTHER READING

lgim.com/global