UK assets under management fell 12% in 2008 to £3.7 trillion according to the annual fund management report by International Financial Services London (IFSL), the independent organisation promoting UK financial services worldwide.

The fall follows five successive years of growth, averaging 8% a year. Poor investment performance, reduced inflow of new funds and investor redemptions all contributed to the fall in assets over the past year.

Early indicators for 2009 show that the industry has started to recover with a 14% gain in assets of UK domiciled retail funds in the first seven months of the year.

Institutional funds were the source of two-thirds of UK funds under management in 2008. Around 16% came from retail funds, 9% from alternative funds and the remainder from private clients, according to the report.

Profit margins among fund managers in the UK declined from 32% to 23% in 2008 as revenues fell faster than costs.

"Profitability is likely to remain at lower levels in 2009 as market conditions including reduced asset values, increased competition for new business and investor shift to lower revenue asset classes persist," commented Marko Maslakovic, Senior Economist at IFSL.

Worldwide conventional investment management assets fell 19% in 2008 to $61.6 trillion. The decline reported in US dollars was exacerbated by the strengthening of the US dollar during the year.

Pension assets accounted for $24.0 trillion of the total, with a further $18.7 trillion invested in insurance funds and $18.9 trillion in mutual funds.

Together with alternative funds and private wealth funds, assets of the global fund management industry amounted to around $90 trillion.

The UK is the second largest fund management market after the US and by the biggest centre in Europe. London continues to be the leading centre for international fund management with over a third of its funds under management originating from overseas.

The IFSL Fund Management 2009 report also reveals that:

Fund management makes a significant contribution to the UK economy, accounting for 0.65 per cent of GDP and employing over 50,000 people in 2008. Net exports of UK fund management reached a record £4.1 billion in 2008.

Of the largest countries, the US has the highest ratio of funds as a percentage of GDP (217% in 2008), followed by the UK (204%), Switzerland (174%) and the Netherlands (147%). The global average was 97%.

Sources of global conventional assets under management by type, 2008*

* These figures only show domestically sourced funds for each country without regard to where the funds are managed. No international comparisons are available for total funds under management in each country. Source: IFSL estimates.