In 2021, the growth of sustainable and responsible (S&RI) investing was a standout trend in our data with ESG integration now applied to nearly half of AUM. In the retail market funds under management in S&RI strategies grew by 62%, far outpacing the 11% growth of UK investor FUM overall. Another interesting finding was the extent to which a new generation of ‘lockdown savers’ started to invest through 2020-2021. Inflows to funds from UK retail investors in 2021 were £43.5 billion, the second highest on record. After very little movement for a decade, we have seen the proportion of assets managed on behalf of retail clients increase to 22% of total AUM.

Whilst 2021 was a positive year, we now face a very different operating environment. In February 2022, Russia invaded Ukraine. This tragic event continues to have profound consequences for the Ukrainian people and our firms were caught in the eye of the storm as we raced to implement the sanctions on Russian companies and to carry out an orderly programme of divestment. The ramifications of the war for the global economy have been far reaching, setting in motion a chain of events that resulted in European energy supply shocks, cementing persistent and rising inflation. We are now at the end of the era of rock bottom interest rates and the monetary policy orthodoxy of the last ten years. Looking back to the 1970s does not provide a playbook for central bankers and politicians and even the most experienced chief investment officers must navigate new market dynamics.

Investors are now experiencing a series of unfolding challenges. Portfolio managers face a test of their mettle not seen in a generation. Rising interest rates bring the spectre of recession and weaken the outlook for asset growth. It will become harder to maintain the 10% compound annual growth rate of AUM over the last 10 years. In this environment, investors will seek access to returns that are uncorrelated. This lends urgency to opening up access to alternative assets and private markets. Innovative new fund structures such as the Long-term Asset Fund (LTAF) will increase investor choice and the LTAF could prove to be the catalyst for democratising access to private assets for ordinary pension savers, enabling access to the illiquidity premium enjoyed by institutional investors.