Largest managers holding £2.7 trillion in U.K. assets

Assets under management at the 25 largest money managers of U.K. client assets increased 20% in the two years ended June 30, to £2.7 trillion ($4.2 trillion), according to data compiled by Pensions & Investments.

The top 10 accounted for £2.07 trillion, or 76.8%, of the total.

The world's largest money manager, BlackRock Inc., with £2.7 trillion of assets under management across the globe, retained the top spot for U.K client assets, at £509 billion. That was an increase of 25.9% from two years earlier in Pensions & Investments' inaugural survey. Of that U.K. client total, £384.7 billion, or 75.6% was managed for institutional clients. A spokesman for BlackRock said the total U.K. assets include the Republic of Ireland, which could not be separated out for the survey.

The top five managers remained unchanged. Legal & General Investment Management came second, with £411.3 billion of assets managed on behalf of U.K. clients as of June 30, an increase of 49.7% from two years earlier in Pensions & Investments' inaugural survey. Of that U.K. client total, 95.9% was managed for institutional clients.

Besides LGIM, there were four other insurer-owned managers in the top 10: Standard Life Investments, owned by Standard Life Group; Aviva Investors, owned by Aviva PLC; M&G Investments, owned by Prudential PLC; and Royal London Asset Management, owned by Royal London Group.

BNY Mellon Asset Management and State Street Global Advisors were the only two bank-owned managers in the top 10 rankings.

Independent money managers Aberdeen Asset Management and Schroders PLC rounded out the top 10. The biggest jump in position came from Royal London, which came in 10th place in the 2014 ranking, up from 18th in 2012.

Fixed income took the largest share of institutional assets managed on behalf of U.K. clients, with a 41.7% weighted average, among firms providing the data. Overseas equities was 22.5% of the weighted average portfolio managed for U.K. clients, while U.K. equities accounted for 7.6%.

“The U.K. share of equities (among pension funds) continues to fall — U.K. stand-alone equity portfolios are in decline, and more global portfolios are becoming the norm,” said Tapan Datta, head of asset allocation at Aon Hewitt, based in London.

That increase in fixed income is something that has benefited manager LGIM.

“In the institutional market there has been the derisking of pension schemes, so there has been significant growth in matching assets, using fixed income and (liability-driven investing) strategies, a natural evolution of our business of active fixed income,” said Mike Walsh, head of institutional distribution at LGIM in London.

Figures from management consultant KPMG's 2014 U.K. Liability Driven Investment survey, published in June, show LGIM is the largest manager of LDI strategies in the UK. As of year-end 2013, LGIM had £228.6 billion of notional assets hedged in LDI strategies, ahead of BNY Mellon affiliate Insight Investment Management (Global) Ltd.'s £130.1 billion. BlackRock was in third place in that survey, with £82.8 billion of notional assets hedged in LDI programs.

LDI and active fixed-income expertise stood LGIM in good stead to increase its U.K. assets under management, Mr. Walsh said. The manager was instrumental in the U.K.'s largest buyout, for the TRW Pension Scheme, Solihull, England, announced in November. It had implemented an LDI strategy in 2007 for the U.S. automotive company's U.K. plan. The £2.5 billion partial buyout covered about 70% of total liabilities. The buyout was secured with LGIM's parent company, Legal & General.

“We are finding a lot of people understand what the ultimate journey (is) and they are coming to us,” said Mr. Walsh. “It is a cost saving, effectively: When you are with L&G, you know where you are looking to get to. We can look at your assets, and it makes the buyout a lot cheaper because we can structure the assets (in the derisking process in a way that) an insurance company would like to (take on in a buyout.)” Therefore, an insurer does not have to sell and buy assets and restructure a portfolio that they take on through a buyout. It also saves time, said Mr. Walsh. “That has been a major driver of the asset growth in terms of the trend around derisking.”

Multiasset strategies also have bolstered managers' assets under management.

Fourth place Aberdeen Asset Management's U.K. client assets under management increased 253.6% in the two years ended June 30, 2014, to £178 billion.

“The increase in U.K. assets is largely due to the acquisition of Scottish Widows Investment Partnership,” said John Brett, global head of distribution at Aberdeen Asset Management. The acquisition, completed March 2014, added about £136 billion of assets under management.

“However, we have also seen good interest from institutional investors in a range of our capabilities, in particular property and alternatives.”

Mr. Brett said the continued trend of global and international allocations at the expense of U.K.-specific equity and fixed-income allocations has benefited the firm.

Nearly half, 49%, of Aberdeen's institutional U.K. assets is invested in multiasset strategies. The multiasset capability, said Mr. Brett, has also helped Aberdeen to win its first derisking contract.

“Our enlarged and strengthened solutions division, following the SWIP acquisition, recently won (that allocation),” he said, by combining those capabilities with Aberdeen's fixed-income and LDI offerings.

Multiasset strategies accounted for a weighted average allocation of 15% in terms of overall U.K. institutional client assets under management, according to P&I's data.