Reference no: EM133072195
The following information is provided by an asset management company which has a life insurance company as a majority shareholder.
-The majority of our clients are in the UK retail market and are introduced to our funds through our distribution partners.
-Our funds are largely invested in equities, in both the UK equity and global equity markets. All funds are actively managed and 75% of our funds outperformed their benchmarks over a three-year period.
-Our fund managers are given individual responsibility for their funds although they work closely together with other managers to share and challenge each other's ideas. Our funds are relatively concentrated and we favour an unconstrained style of investing, whilst complying with the fund mandates. The focus is on generating alpha based on identifying mispriced securities and taking a longer-term view on investment opportunities.
-We are incorporating an ESG (environmental, social and governance) approach to investment decisions.
-Assets under management (AUM) at 31 December 2019 were £65.3bn, an increase of £13.1 bn from a year earlier reflecting strong equity market performance.
-Operating margins in 2019 were 40%, which is slightly down from the 42% margin in 2018, and margins are expected to decline further, although our long-term target is to continue to achieve margins in excess of 35%.
-2020 has been a challenging year, our results will be affected by the declines in equity markets and uncertain economic outlook due to the Covid pandemic, however, we have not seen major cash outflows and our profits have been relatively resilient despite the pressure on margins.
(a) Comment on the possible implications for the fund management company of a life insurance company being a majority shareholder.
(b) Discuss the company's focus on active equity management in light of trends in the investment management industry.
(c) The company says operating margins are expected to decline. Discuss and explain the pressure on margins the company is likely to be facing.
(d) Identify and explain two different approaches to ESG investing.
(e) Comment on the company's policy of giving fund managers individual responsibility for their funds.
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