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But with the top ten firms, led by Barclays Global Investors, continuing to dominate nearly half the market, there is little sign that competition is driving down fees. The IMA’s finding that fund managers are typically charging 0.28% of assets under management — equivalent to about Pounds 8 billion a year — raised eyebrows in some quarters. One analyst said: “Over the past three to four years, taken together, the composition of those assets has probably shifted away from equities to fixed income. The typical institutional tariff on these fixed interest products would be 10 to 15 basis points (0.1 to 0.15%), so these people are doing jolly well, as the costs of managing a portfolio of fixed income stocks are a fraction of active equity management.”
Despite a shift from equities to bonds as pension funds attempt to match their liabilities more closely with their assets, the proportion of shares in most portfolios has remained stuck at 51%. Mr Saunders said that his calculations showed about Pounds 30 billion to Pounds 40 billion had moved into bonds, a similar amount as in its previous survey, but the rise in share prices had offset the switch. Andrew Clare, professor of asset management at the City’s Cass Business School, said: “A lot of pension schemes at least have been too weak to switch from equities to bonds. They’ve been only too happy to watch their equity values rise. Their patience has been rewarded, because equity values have recovered strongly over the last three years.”
Even so, the one third of assets held by the typical manager in bonds seems to have been a drag on performance. Commenting on the growth in funds to December 2005, the date at which the figures were compiled, one observer said: “Maybe it does show the strength of the UK fund management industry, but 30% over 18 months is pretty much all down to market appreciation over that period.”