Assets in the U.K.’s private defined benefit market will decrease 6% by 2023, to £1.05 trillion ($1.8 trillion), says research company Spence Johnson.
The firm’s latest research into the U.K. DB market forecasts a 6% drop from today’s £1.12 trillion market. It projects a decrease in the number of DB funds left fully open to new entrants and accruals to 131, or 3%, down from the current 14% of funds. By 2023, the DB market will be cash-flow negative “from a swelling of pensioner numbers and a decline in active member contributions,” said the report.
Spence Johnson said that by comparing the U.K. pattern of open funds to that of the U.S., the last “bastion” of DB membership in the U.K. is large companies. “In the U.K., large companies appear to be moving toward closure at the same rate as did U.S. equivalent firms six to seven years previously,” researchers wrote in the report.
Money managers are also in for a drop in cash flows — Spence Johnson estimates that by 2023, 24% of the total private DB asset base will be in liability matching assets, up from the current 17% of assets. “This will feed through into a smaller revenue pool for asset managers given much lower fees,” said the report.
“Solutions and outcome-oriented fund providers will serve over 75% of the addressable DB market by 2023,” said Will Mayne, senior consultant at Spence Johnson, in a statement accompanying the report. The projected growth of fiduciary management — which Spence Johnson expects to account for more than £200 billion of assets by 2023 — presents an opportunity for money managers to claw back some revenue.
But it also threatens specialist money managers. “The internal investment capabilities of these solutions providers will remove much of these assets out of circulation for specialist asset managers,” said Magnus Spence, director at Spence Johnson, in the same statement. “This, combined with a falling market size, will reduce the assets available to specialist asset managers from more than £630 billion today to only £345 billion.”