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IPE special report May 2018

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France’s FRR addresses Brexit concerns in manager search

France’s €36bn pension reserve fund has taken steps to remove Brexit-related uncertainty from having an adverse effect on a newly launched investment manager search.

The tender is for two small cap equity mandates totalling up to €1.7bn, one for domestic small cap companies (€600m) and the other for European small cap companies (€1.1bn).

Managers outside France bidding for the mandates must have a European fund ‘passport’, FRR said, allowing them to conduct their activities throughout the EU or the European Economic Area (EEA).

However, given uncertainty about Brexit and FRR’s lengthy procurement process – it is expected to be finalised in April 2019, shortly after the UK’s expected departure from the EU – FRR was concerned that some UK-domiciled asset managers might not bid for the mandates due to the risk of losing their European passports.

Anne-Marie Jourdan, chief legal officer and head of public relations at FRR, told IPE that the fund wanted to avoid penalising UK-based managers and potentially deprive itself of high-quality investment management. Many managers of small-cap strategies in particular were small, specialised UK-authorised firms without any branches or subsidiaries elsewhere in the EU, she said.

FRR said it wanted UK-based managers to present an “alternative candidate” registered in the EU or EEA to take on the mandate in the event of UK firms losing their European passporting ability.

The alternative manager could then outsource the investment management function to the UK-based firm.

“We wanted to allow them to apply as a UK-based candidate,” said Jourdan. “It might not be a perfect solution and we hope there’ll be a soft Brexit, but we preferred to be prepared for a hard Brexit.”

Some larger asset managers have increased their presence in the major EU fund domiciles of Ireland and Luxembourg, including Royal London, Aberdeen Standard Investments, Jupiter and M&G.

Last month, Irish investment experts said managers realistically had until July to apply for authorisation to operate in Dublin.

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