20 November 2015

BLOG: WHO OWNS UK EQUITY?

by Kevin Lapwood | 20 November

The recently published ONS report on the ownership of UK shares underlined the continuation of some embedded long-term trends. Ownership of UK-quoted equity by UK institutions and individuals continues to fall in favour of overseas headquartered investors. Since 1989, the share of the total UK market held by non-UK investors has risen from 12.8% to 53.8%. Within the FTSE100 the figure is higher at 55.2%. At the same time there has been a marked decline in the proportion of the market held by private individuals from 20.6% to 11.9%, which represents a fall in real terms of 17.8%. Indeed, if we look at 1963, the earliest available data, private individuals accounted for 54% of the total UK market. So much for the rise of the share-owning democracy.

Obviously, much of the rise in overseas investments can be attributed to global consolidation and it is true that a large proportion of these funds are still managed within the UK. In addition, some of this decline in individual equity investment can be explained by the increase in the use of managed funds and discretionary wealth management services. Recent data from the Wealth Management Association, which represents 110 private client wealth management and stockbroking firms in the UK, showed that their total assets under management had risen by over 170% in the last 10 years to reach £740bn, of which we estimate around £300bn is held either directly or through collective funds in equities.

On the other hand, UK headquartered investing institutions now account for just 26.8% or £460bn of UK equity share ownership, down from 57.8% in 1989 and representing a real decline of 33.9% against a real total market gain of 42.5% (CAGR 1.5%pa). Within the UK institutional decline, pension funds have reduced their holding of UK equities from 30.6% of the market to just 3.0%, a real decline of 86.1%. This has been initiated in an attempt to more closely match liabilities with the steady income generated by fixed income investments. It is possible, but not very likely, that the changes to pension rules with respect to annuities and auto-enrolment will reverse this trend. Elsewhere, holding by insurance companies and charities were down, while holdings by banks, unit trusts, investment trusts and other financial institutions were up.

The message is clear. The UK quoted equity accounts for a total of around £1760 billion of investment. The latest data from the Investment Management Association, which represents over 200 UK-domiciled investment managers indicates that global equity represents their largest asset class, accounting for 45% of funds under management. However, the amount of UK equity owned by mainstream UK institutions is less than 20% of the total. With 54% owned by overseas institutions, which may or may not be managed in the UK, the balance, valued at around £450bn, is held by smaller institutions, retail investors, private client wealth managers, and hedge funds. Clearly, any investor relations programme that is not targeting these potential investors is missing a significant proportion of the total investor universe.