The March deadline for Britain’s definitive exit from the European Union is looming, but how is the state of asset management fitting into the grand scheme of things?
We’ve recently released a report on the topic by Tim Cooper: How Asset Managers are preparing for Brexit. Given the very possible restrictions of cross-border trade between the EU and the UK, financial institutions have been readying their own plans, possibly preparing for a no-deal scenario which will affect their business models.
Here are Tim’s main findings on Brexit planning from the world of asset management.
The worst outcomes
Whilst uncertainty about what the exact implications of Brexit will be, asset managers appear to be showing concern. State Street Corporation’s quarterly ‘Brexometer’ identified that, in Q3, 26% of investment companies feel that Brexit will have a negative impact on the economy. Whilst this doesn’t seem a particularly high figure, it must be noted that this is a 12% increase from Q2 and the highest figure since the Brexometer was released two years ago.
A survey by the CFA Institute has also identified that 85% of fund managers believe that London will be hindered by Brexit, with 67% believing that staffing levels in the capital will fall.
Asset managers revealed their biggest concerns from the change; 28.1% identify regulatory reporting as the main caveat (Solvency II and the Alternative Fund Managers Directive, AlFMD), particularly across all countries where a firm’s operations take place.
The City has increasingly held onto the belief of a “mutual recognition arrangement” being the best alternative option for passporting, whereby trade ties are kept as similar as possible. This differs from the government’s leaning to ‘equivalence’: the EU’s current approach to allow non-members to continue trading due to familiar regulations. It limits activities that current passporting offers however.
Should I stay or should I go?
In preparation for the worst outcomes, UK-based managers will look to other EU27 locations to set up base. Many firms already have a presence elsewhere, but 63% as surveyed by the CFA Institute also identified that they would decrease their UK presence.
A third of some of the largest asset managers have already planned to move some of their services to EU27 countries, or ramp up their operations already existing on the continent. A third are also setting their sights on Dublin and/or Luxembourg.
The most attractive new hubs are, more specifically, as follows:
- Luxembourg: 57%
- Ireland: 53.8%
- The Channel Island: 24.7%
- Germany: 20.4%
- France: 14%
Clearly, the relocation aspect of preparatory measures is one of the most pronounced, identifying the clear planning asset managers have been undertaking before March.
Blown out of proportion
In addition, Tim has looked to the view of Peter Toogood, chief investment officer at Embark Group, who feels that most fund manager groups have already got ahead of the game; the global positioning of fund managers means that relocation is not just the only concern, but a fairly simple one, too.
Despite firms in the City feeling the UK (and London specifically) will falter, they still remain top talent pools for the financial services industry, and thus Brexit should not undermine its positioning as a global financial centre.
Then again, this forward-planning is cost-worthy, as noted by Bash Govender’s report for Capco. As well as pouring considerable amounts of money in to maintain readiness before March, the post-March environment also needs to be planned for to retain competitive advantage.
Brexit may seem so close, yet so far away, but it seems safe to conclude that asset managers are not just advanced with their initial preparations, with contingency plans also on the back burner as Brexit uncertainty still remains. March will be an interesting time for asset management in the UK; best be prepared for any possible scenario.