UK Research Insight - 18 September 2020
/Institutional Investing in U.K. Retail Funds
Institutional investors are responsible for 15% of assets under management in Investment Association sectors.
The largest IA sectors in asset terms hold significant institutional investor allocations.
UK All Companies comprises of 49% institutional investor money.
Institutional investors hold 62% of the assets in the IA Global equity sector.
85% of the IA Global Emerging Markets Bond–Hard Currency sector is invested by institutional investors.
Ten years ago, a UK based retail investor could, in general, only buy a retail share class and an institutional investor would only buy the lower fee institutional share class. Over several years the barriers of retail and institutional fund investment have decayed through a combination of the Retail Distribution Review (RDR) in 2012, the growth of fund platforms and pension freedoms introduced in 2015. These events, amongst others, led to a comingling of retail and institutional assets as; retail investors can buy institutional share classes through platforms, and, institutional investors are accessing retail funds to gain access to fund manager talent and reduce costs as their share of investor wallet declined.
By comparing Financial Clarity’s UK retail fund data to the Investment Association’s (IA) data set we gain insight into the extent to which institutional investors are accessing funds in the IA sectors. Institutional investors were responsible for 15% of the assets across IA sectors at the end of June 2020. However, the extent to which institutional investors allocate to each IA sectors reveals interesting information.
Figure 1 shows the level of institutional investment in the five largest IA sectors. The largest IA sector, UK All Companies, is comprised of 49% institutional investor assets. The Global equity sector, which was the best-selling sector in 2018, 2019 and Q2 2020, is 62% institutional money, which may explain that sector’s rapid growth in recent years.
*Source: ISS MI Financial Clarity; Investment Association.
The Sterling Corporate Bond sector, with 49% institutional investor base, has an interesting dynamic. Financial advisers are the largest investors in retail funds in the UK but have a relatively small allocation to fixed income, there has, however, been large inflows into fixed income funds. With this analysis we can see the inflows into fixed income funds can be explained by a high institutional investor base and not retail investors allocating to bond funds.
