Top 400: Brexit - What lies ahead
Asset managers must put client interests first as Brexit negotiations draw near
- Client interests, fund structures and future business models are urgent priorities for UK asset managers.
- Stable EU presence and access to talent is a concern.
- Market disruption should give rise to investment opportunities.
The Brexit negotiations soon to get underway will determine the shape of the UK’s future relationship with the European Union, setting out the structural framework within which asset managers and other businesses will need to operate.
While at a political and economic level Brexit is one of the most significant changes in recent history, as a business our long-term strategy remains the same.
We understand that there will be an impact and that there are many unanswered questions regarding the UK’s future relationship with Europe. But we do have the expertise and resources to work through the issues and will do so to protect the interests of our clients, employees and our business in the UK, Europe and the rest of the world.
In uncertain times, our primary responsibility is to ensure continuity and stability for clients. Like other asset managers, we have undertaken a review of our operations following the referendum and have been busy meeting with industry bodies, the government and regulators. Given the uncertainties, our priorities have been to:
• Look after our clients and funds;
• Revisit and refine our business model so we have a stable and consistent presence in the EU post Brexit; and
• Keep under review potential impacts for EU nationals in the UK.
This last point is of particular interest to us. As a global company, we have EU citizens working in the UK and European employees in our offices across the continent. Access to this talent is of paramount importance and we will want to understand what the impact on freedom of movement means for them. So far our people have been pragmatic and getting on with business as usual. Our priority is to provide clarity and reassurance as soon as possible.
Similarly, we are keeping a keen eye out for any reaction in client sentiment. We have not yet seen dramatic changes, but will be ready to respond should we need to. We have a clear plan, although the reality is that client sentiment may dictate our timing, long before the outcomes of the Brexit negotiations are known.
At this stage, to be prudent, we are working on the basis that when the UK leaves the EU it is likely to lose the market access rights that come with EU membership. This has important implications for Europe-based investors who, through passporting, can currently invest in UK-domiciled funds.
With change afoot, our main priority is to ensure that clients invested in UK funds are not negatively impacted and are able to transition smoothly to equivalent European-domiciled products. There are questions and potential unintended consequences such as tax that will need to be addressed and we need to make sure that investors are not penalised in the Brexit process.
Our priority is to ensure that all of our clients continue to be able to access our best investment products through a multitude of vehicles and global jurisdictions. We are in constant dialogue with them and aim to provide clarity and certainty as soon as possible, and ensure that any implementation periods are managed smoothly and in their best interest.
We expect the direct impact on our overall business to be relatively minor and despite the current uncertainty, our long-term strategy has not changed. We have a significant and important European business, which we plan to grow and over the past several years we have focused significant product development on our Luxembourg-based SICAV, alongside fund structures in other global regions.
We are, of course, continuously reviewing our business and client requirements to ensure we can meet any upcoming challenges. We are working on plans for a range of possible scenarios and impacts, including the possibility of having an asset management presence in another EU market. The robust and coordinated approach of our industry groups – the Investment Company Institute in the US, the UK Investment Association and TheCityUK – have been extremely good and it is in all of our interests that this continues.
As investors, we are naturally concerned about the market impact of the UK’s exit from the EU. We believe active managers are best positioned to seize the opportunities created by market volatility and our job is to analyse, understand and respond to all elements of the external environment. This is no different in the case of Brexit.
Nonetheless, we hope for minimal disruption in form of a mature, bespoke deal between the UK and EU, with a clear implementation period and access to talent. TheCityUK has undertaken extensive work to define the shape of a bespoke deal which we believe is in the best interest of investors, asset managers, the financial services industry and the global economy. It is asking the UK government to focus on policies and clearly-calibrated courses of action that will be conducive to stabilising markets over the long term. Terms that resemble as closely as possible the market access we currently enjoy are evidently the preferred option, so that end-investors continue to have access to the widest possible range of financial and related professional products and services.
We are cautiously optimistic that the UK’s role as a dominant financial centre in Europe and its global ranking in services trade supports the case for a well calibrated, mutual agreement. According to TheCityUK, the UK employs nearly 2.2m people in financial and related professional services and the industry has a unique role and footprint in international trade. Financial and professional services exports account for more than half the surplus of all UK net exporting industries and 41% of this trade takes place with EU countries.
Similarly, UK capital markets play a significant role in the European economy. Research by think tank New Financial has found that they are on average twice as developed relative to GDP as in the rest of the EU, and UK companies and investors account for around one third of IPOs, venture capital and private equity activity in the EU. Just over 40% of assets under management in the whole of the EU are managed in the UK. Unpicking this interdependence will be challenging and clearly needs to be managed carefully.
With regard to regulation, it is clearly in the interests of both the UK and the EU to ensure continued deep and ongoing regulatory and supervisory cooperation between authorities across the globe. In fund management, the UCITS structure enjoys a strong reputation and we expect it to weather the storm. In addition, the global nature of fund distribution and regulatory developments such as MiFID 2 means that we are likely to see similar regulatory standards applied across the UK and EU.
Finally, in order to preserve the UK’s position as the leading international financial centre – and its significant contribution to the UK economy – TheCityUK also highlights the importance to move swiftly to advance trade and investment opportunities with the rest of the world, such as bolstering strong links with the US and Japan, redoubling efforts in key emerging markets such as China and India, as well as identifying valuable opportunities in other countries. It is a commonplace view that 90% of global economic growth in the next 10 to 15 years is expected to be generated outside Europe, and that trade and investment is the conveyor belt that will link the UK to the new global growth centres and provide a unique source of productivity gains.
Above all else, the extraordinary experience of the past 12 months has again demonstrated that none of us know what lies ahead. Whatever is in store over the coming years, we hope that investors will receive the attention they deserve in the forthcoming negotiations. As an industry, we are committed to speak up and ensure that any outcome is in the interest of our clients.
An orderly exit and clear implementation agreements are paramount to economic stability in the UK and the EU and will help ensure the smooth and efficient functioning of markets, investor protections and continuity of service provision for individual investors and savers.
We look ahead with clear focus, cautious optimism and are ready to act as the UK and Europe start a new chapter in their history.
Dominik Kremer is head of EMEA institutional sales at Columbia Threadneedle Investments and a member of the international trade and investment working group at TheCityUK