Has the ‘squeezed middle’ come true for UK asset managers?

As data for the end of the year has trickled out over the last month, it has become clear that 2023 was a poor year for mid-sized asset managers, after they suffered an already bruising 2022.

The idea of the ‘squeezed middle’ has been a pervasive business cliche for some time, but it seems to be coming true for UK asset managers.

In 2018, consultancy firm Accenture produced a report that found that while asset management should be a “scale game”, in practice, “even the biggest asset managers create the same economic profit margin as some of their mid-sized peers”.

This no longer seems to be the case.

While boutique managers focused on a single specialist area have continued to flourish in the market, mid-sized managers face being unable to compete with big dogs like Blackrock.

Asset managers with market caps between £400m and £4bn like Liontrust, Rathbones, Abrdn, Jupiter and Ninety One have all suffered significant outflows and falling revenue over recent months.

Almost all of them FTSE 250 members, these managers have seen their stock prices suffer significantly, as they have pursued cost-cutting, failed mergers, and struggled to keep up with the biggest asset managers.

Data from last week revealed that the managers that brought in the most money last year did not change from 2022, with all of the top five for gross retail sales staying in the same order.

Meanwhile, Liontrust was ejected from the top 10 in gross sales for 2023, just as it was ejected from the FTSE 250 at the end of last year as its stock price was cut in half.

Abrdn reported £12.4bn of outflows in the second half of 2023, while Liontrust bled £1.7bn in the last quarter of the year, and Jupiter reported customers withdrew £2.2bn from the firm throughout 2023.

Rathbones saw the best success, only losing £222m in the last quarter of the year, while Ninety One, who have not yet released fourth quarter flows data, said in November that it had suffered £4.3bn of outflows over the previous six months.

The stock prices of these asset managers have suffered equally as much, with Rathbones down 28.9 per cent in the last year, Abrdn down 24.8 per cent and Jupiter down 43 per cent.

Meanwhile, Numis analyst David McCann said last month that Liontrust should be avoided as it was “cheap for reasons” including persistent outflows, a lack of strategy to return the group to growth and the increasing risk of a dividend cut.

Fears around Jupiter specifically have been stoked in recent weeks, after its star manager, Ben Whitmore, announced he would be leaving the firm to start his own boutique.

Whitemore manages about a fifth of Jupiter’s assets, at around £10bn, leading investors to panic about further outflows and its stock to crash 14.6 per cent in a single day.

However, in a research note this week, BNP Paribas Exane upgraded Jupiter to a “neutral” rating, arguing that there was “limited evidence of these fears playing out” and the challenges for the company had already been factored into the valuation.

A key reason for these companies’ decline has been the rise of passive investment, with data revealing that 71 per cent of new money going into the top four asset managers last year went to passive funds.

Mid-sized asset managers have long prided themselves on ‘star managers’ with contrarian opinions, but they’ve struggled to beat the market. As a result, they’ve found themselves unable to compete with the giants of Blackrock, Vanguard and Legal & General IM.