The UK asset management sector has been significantly derated over the past couple of years. It has faced the dual problem of a shift towards passives and to private assets and away from traditional listed equities and bonds. However, the sector’s assets haven’t collapsed; its margins have proved relatively robust and its profits fairly stable, even against all the rising costs. The clear implication, to us at least, is that the lowly rating the sector now sits on assumes that the twin asset shift threat will continue and will eventually crater its profits. In our view, this seems far too apocalyptic an assumption. The Trump upheavals may well upset the trend to passives – with such a substantial proportion of wealth now exposed to just a few mega US stocks – and the long bull run of private equity seems unlikely to continue in an era of higher interest rates. Relentless extrapolation is a dangerous game in investment.
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