Tony Blair’s Cool Britannia made its impact on the world’s financial markets in 1997 with London becoming the pre-eminent center of institutional equity management in the world. That involved a 48 percent jump in assets from 1996, to a massive $1.8 trillion under active management.
The finding comes from Technimetrics’ 1998 International Target Cities Report, which ranks financial centers according to the value of equity funds managed in each location. According to the study, London’s surge came as a result of last year’s nearly 25 percent stock market rally, as well as the appreciation of the pound relative to the dollar. International managing director Fred Stone says that London’s ascent has also been aided by US expectations of the growth of pension funds in continental Europe – US investment in the UK was up 70 percent, bringing it to a total of $130 bn.
‘There are over 40 major institutions in London now which are US-owned. They know they want to be in Europe and London’s an ideal base. They’re now waiting to see if other European countries are going to go solidly down the pension route,’ says Stone.
According to the report, London’s move to pole position has also been aided by the collapse of currencies and stock markets in the Asia-Pacific region, knocking Tokyo off its number one position for the first time since 1988 when Technimetrics started the annual survey. Technimetrics notes that the significance of this can be more fully understood if one considers that in 1990, Tokyo had more institutional equity under management than the next 14 largest cities put together.
Asian split
The Japanese capital was not the only Asia-Pacific financial center to lose out last year. While Tokyo’s assets under management fell by 32 percent, Hong Kong lost 23 percent and Seoul 62 percent. In contrast, because of healthy stock market gains and a rapidly expanding pension market in Australia, Sydney registered an overall increase of 12 percent. But the Technimetrics report predicts that the Japanese drop will not be permanent. ‘Investors there currently have approximately $10 trillion locked into low-interest bearing savings and annuity accounts which, as a result of recent deregulation, will soon be permitted to be invested in foreign and domestic equities.’
US institutions continued to pour billions of dollars into their portfolios in 1997, bringing North American institutional investment in equities to a total of $6.5 trillion at year-end, a 30 percent increase from 1996. New York makes up the biggest chunk of that figure, with assets totaling over $1.5 trillion, but Boston, Denver and Trenton, New Jersey also made substantial progress in 1997 with growth rates of 36, 40 and 47 percent respectively. US institutional investors also continued to look abroad for investment opportunities in 1997, increasing the value of their international holdings to 27 percent.
As with the UK, Technimetrics puts much of the growth in US institutional holdings down to the 33 percent increase in the stock market in 1997, but it is also clear that the growth in mutual funds contributed to the general increase in total assets under management.
All in all, then, 1997 was another bumper year for institutional money managers around the world who now have some $12 trillion in equity assets under management. According to Technimetrics, $10.1 trillion of those funds are held by the 25 largest centers of equity management, which means that those cities control virtually half of the total market capitalization of the world.
‘The report is sending out an obvious message. If you only communicate with your domestic market you’re missing out on major opportunities overseas,’ says Fred Stone. ‘More to the point, you’ll find your stock is being held overseas anyway. And if you don’t have a proactive investor relations program, it’s the analysts and journalists who will be marketing your stock for you.’
Not an ideal situation for even the most healthy company
