The U.K.’s financial watchdog is urging U.K. money managers to help it “make sure private markets rise to the occasion,” asking for a rethink on risks and opportunities, and for managers to nurture the skills and talent needed for success.
Nikhil Rathi, CEO at the Financial Conduct Authority, made the pitch in a speech delivered Oct. 29 at the annual dinner held by the Investment Association, which represents U.K. managers with a total £9.1 trillion ($11.9 trillion) in assets under management.
“Success is a delicate balance between understanding the environment and managing risks, while standing back and giving your efforts room to grow,” he said, according to a transcript of the speech.
The U.K.’s public market reforms are “well advanced,” with changes to listing rules, optionality for investment research, and a new public offer regime.
Turning to the private markets, Rathi highlighted that global private capital assets under management is triple what it was 10 years ago, at more than $14 trillion, while more than half of European private markets AUM is based in the U.K. — representing “a real opportunity, particularly for U.K. investment managers.”
Rathi cited U.S. SEC Chair Gary Gensler, who recently noted that U.S. debt capital markets facilitate 75% of debt financing of nonfinancial corporations. The markets for dollar funding of commercial credit are about $30 trillion — including $1.4 trillion in the broadly syndicated loan market, $1.7 trillion in the private credit market, and $2.8 trillion in commercial and industrial loans by U.S. banks.
The U.K., while experiencing “significant growth” with private markets AUM almost trebling over the decade, although figures weren’t provided.
But it’s hasn’t grown “to the scale of the U.S.,” Rathi said. He posed a question for discussion to money managers — “whether we should aim to move sharply in the direction of the U.S., to deepen financing options for U.K. corporates. And what such a move would take.”
Rathi addressed five themes. The first was whether private markets should be approached “with a risk or opportunity mindset,” adding that “it is time to reset our narrative. But not in a way that is oblivious to risk.”
Transparency is needed, particularly on data, and illiquidity is one risk in these types of assets.
The second theme is on technological and product innovation, with Rathi saying that the U.K. must be open to both. He said private market active ETFs are already big in the U.S. and gaining momentum in the U.K., while data infrastructure such as indexation is also developing.
Value and fees made up the third theme Rathi addressed, saying there need to be “sufficient incentives to support investment in higher risk/higher long-term return products that could secure better outcomes,” while the need for an “enabling and proportionate regulatory approach” was his fourth issue. Rathi cited the SEC’s recent update of its Form PF reporting for private fund advisers, and said the FCA will next year work with money managers on data collections.
The final topic Rathi addressed was talent and skills. He said he’d just returned from meeting with global money managers in the U.S., where one described the U.K. as “home to a ‘ton of talent.’ … This huge competitive advantage needs nurturing,” he said, urging the money management industry to keep investing in capacity and skills to understand private companies in greater depth, and also to “think about all the untapped talent” in the industry.
Despite the U.K. being the second-largest international investment management hub, just 12% of fund managers are women. That statistic “has barely moved in recent years. So I hope we can focus on harnessing even more of the talent that will sharpen your sector’s competitive edge,” Rathi said.
