Fund management may not have attracted many headlines in Scotland in recent years but, given the turbulent times the financial services sector has endured of late, that can probably be seen as a blessing
Fund management may not have attracted many headlines in Scotland in recent years but, given the turbulent times the financial services sector has endured of late, that can probably be seen as a blessing.
It has never been particularly flamboyant, with players often hiding their physical presence rather than proclaiming it. But lack of profile has not meant a lack of activity.
Fund management in Scotland has certainly ridden the storm. The volatile stock markets of the last few years - and in particular the sudden falls of 2008/9 - depressed the value of assets which, in turn, reduced management fees. Performance fees and returns also fell, though given the FTSE dropped to 3500 at one point that's hardly surprising.
Fund managers did, though, keep generating income through the tricky times. "If investment banks suddenly stop doing deals because there's no longer any business, then all the revenue goes," explains Gareth Horner, partner in charge of fund management in Scotland for KPMG.
"The fund sector isn't like that. Even if the money stopped flowing in companies would still earn revenue from management fees. Some managers have seen real outflows as their customers have decided they don't want to be in the market and want to go somewhere else. But they may have lost 20 per cent of their clients, not 100 per cent."
Scotland is still a huge manager of funds - the £750bn it looks after on behalf of clients amounts to £150,000 for every man, woman and child in the country - and there are signs of optimism as far as the future is concerned. The tentative upturn in the US economy is one example, as is the comparative strength of Asian and emerging markets.
Set against this, however, is uncertainty over the Eurozone. "Noone knows what will happen in terms of customer sentiment if Greece falls out of the Euro," says Horner. "Most fund managers are waiting to see what happens there, as well as in countries such as Portugal and Italy."
Concern over sovereign debt default is not, however, causing stasis. Six months ago some Scottish fund management companies were looking at merging funds to save money; now some are considering launching new ones. That is clearly a sign things are far from apocalyptic.
There is a continuing presence of big players in the market place, ranging from Standard Life Investments and Scottish Widows Investment Partnership (SWIP) through to other blue chip names such as Baillie Gifford, Martin Currie, Aberdeen Asset Management, Artems and Ignis Asset Management. This plethora of solid, established companies means Scotland, and Edinburgh in particular, is not going to give up its position as one of Europe's leading centres for fund management anytime soon.
One of the most successful parts of the sector has been fund administration. This is often process driven, but is a vital part of the sector and Scotland has attracted big names such as State Street, JP Morgan, Citibank, HSBC and BNP Paribas.
"We now have representation from most of the large administrators either in Glasgow or Edinburgh," says Horner. "There will continue to be growth as they take advantage of the fact our workforce is well educated and also slightly more economic than the one found in London."
To an extent, he says, they will outsource their operations to countries such as India, but there is only so much offshoring they can achieve. "There are areas such as client contact work which you cannot move to these places. Customers expect you to be able to see them in their offices."
Steve Davies, PwC's Edinburgh-based retail and commercial banking leader in the UK, also sees Scotland's fund management sector as being a success story. "We have a relatively good heritage, good people, a strong market and a history of innovation. We also have a combination of critical mass and a lack of the kind of aggressive consolidation we have seen over the last 20 years or so in the banking industry.
"Companies do have their challenges, such as how to sustain a portfolio strategy in a low interest rate environment which is affected by uncertainty. But these are issues around the globe. As a sector, fund management in Scotland has been allowed to flourish, and that's clearly a good thing."