US Asset Management Giant Looks To Push Into UK Market - Report

Tom Burroughes

2 February 2009

Vanguard Group, which has made a name in the US for selling low-cost funds, is launching in the UK as the first step in a global expansion that could unleash a price war on the ailing investment management industry, according to the Financial Times.

The move to offer index tracking funds and, possibly, actively managed funds on substantially lower charges than most existing UK-based funds, will put further pressure on UK asset managers to cut costs, compounding the effect on margins of the massive asset outflows and underperformance of the past year.

Investment management companies are merging, selling or closing operations. New Star Asset Management has been forced into a debt-for-equity swap with its banks and announced last week it is being acquired by rival Henderson. Credit Suisse recently agreed to sell a large chunk of its fund management business to Aberdeen Asset Management, the UK-listed investment firm.

European Union laws enabling more mergers between funds in different countries, coupled with the likely consolidation of asset managers amid the financially tough environment, are likely to push down European fund fees to the sort of relatively low levels now common in the US, analysts have said.

Tom Rampulla, managing director of Vanguard Investments UK, was quoted as saying that the group, which is one of the world’s 10 largest fund asset managers with more than $1.0 trillion under management, would not embark on a costly advertising campaign.

He said: “You won’t see the big banners on the train stations, but once we do decide to do something, we go at it in a very aggressive way.”

If necessary, he said, the fund provider would help independent financial advisors move to a fee-based model.

“The UK is very similar to the US 10 years ago,” Mr Rampulla said. “Almost nobody was doing fee-based advice. Now 60 per cent to 65 per cent of advisors’ compensation comes from fees,” he said.