4.5NdtIs and the ow of funds

In the previous sections of this chapter, we have looked at a variety of types of

non-deposit-taking nancial intermediation. We have seen what assets have been

accumulated in the process and we can make a judgement about relative size, at

least when judged by the total stock of assets that has been accumulated. However,

while stock data tells us a great deal about what has happened in the past, it is often

useful to look at ow data as well, especially if there is any reason to believe that

current activity might differ from past trends.

Table 4.1 combines both stock and ow data for different types of NDTI. Comparing

the information in the rst and last lines shows immediately that different pictures

can be drawn from the two different data sources. The rst line shows the total stocks

of assets held at the end of 2004 and on this basis long-term or life assurance com-

panies clearly dominate, followed closely by pension funds. But if we rephrase our

question ‘who is the biggest?’ to mean ‘who took the largest slice of savings during

2004?’, the answer is that life assurance companies still came rst, but the next most

important destination for savings was unit trusts. General insurance came a rather

distant fourth. The second line in the table shows the annual percentage rate of

growth for these different intermediaries over the period 2000–04. This is essentially

looking at the net inow of funds during this four-year period rather than looking just

at 2004. Notice that investment trusts contracted over the period (and in 2004 itself).

The most rapid growth was in unit trusts, which grew at 1.7 per cent p.a. Clearly,

taking either stock or ow data in isolation can present a very misleading picture.

Table 4.1 also enables us to compare the holdings of different types of asset across

NDTIs (showing where funds have gone in the past) and the acquisition of these

assets (showing where the inow of funds went during 2004). Notice that the table

does not list all the categories of assets acquired, and so adding the gures for the

different acquisitions in the table does not produce a gure which matches the net

inow of funds.

If we are interested in the nancing of UK industry, we might care to note rstly

that life assurance companies and pension funds are the major holders of UK com-

pany securities. This is hardly surprising since we have already seen that these are the

dominant intermediaries by asset size. Much more interesting is the fact that these

organisations appear to have had quite different views about the attractiveness of UK

company securities during 2003. Insurance companies were buyers, while pension

funds made net disposals. The other major holders (and buyers) were unit trusts.

Looking at UK government nance we see again the importance of long-term

insurance and pension funds in accumulating holdings of government bonds. Once

again the acquisitions data is interesting since it shows that in 2004 long-term insur-

ance companies were buying £15.4bn of government bonds, more than half their net

inow of funds. Other institutions bought very few.

Exercise 4.1

Using the data in Table 4.1, calculate for each NDTI the proportion of its total assets made up of (a) UK company securities, (b) UK government securities and (c) overseas securities. Make a note of any signicant difference in the proportions.

114

....

FINM_C04.qxd 1/18/07 11:27 AM Page 115

Questions for discussion