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Categorized | Financial

IA warns about Brexit impact on UK funds

Posted on September 29, 2016

File photo dated 27/11/15 of the Union flag and the EU flag. Some of the City's biggest hitters have delivered a withering critique of Theresa May's Brexit negotiations ahead of the 100 day anniversary of Britain's decision to quit the European Union. PRESS ASSOCIATION Photo. Issue date: Sunday September 25, 2016. The likes of Ryanair boss Michael O'Leary and financial PR guru Roland Rudd rubbished the prime minister's oft-used "Brexit means Brexit" catchphrase, while Sir Martin Sorrell has urged the Government to maintain access to the single market. See PA story CITY Brexit. Photo credit should read: Toby Melville/PA Wire©PA

The UK’s Investment Association has raised serious questions about the ability of Britain’s fund managers to continue to manage £1tn of assets on behalf of mainland European investors following June’s Brexit vote.

In its first public analysis of the impact of Britain’s vote to leave the EU on the members of the trade body for UK asset managers, the IA said jobs could be put at risk and money could potentially be taken away from domestically managed fund companies.

    One of the biggest concerns flagged by the IA is the potential for mainland European clients to “repatriate their asset management activity within the EU” once Britain has formally left the economic bloc.

    “The most direct impact [of the referendum] is that it raises questions about our ability to work for clients in Europe,” said one IA member who wished to remain anonymous. “People will assume that the current legislation and regulatory framework lasts for a while but they have no idea how it will change [or] how it will be renegotiated.”

    The IA’s chief executive, Chris Cummings, said: “The thing that is really at stake is customer confidence. We are going through a process at the moment of quantifying the impact of Brexit and going country by country to see how [companies] can continue doing their business in the same way.”

    The industry body also questioned to what extent it will remain straightforward for its members to serve European funds and clients from the UK, and what, if any, roles or services will need to relocate within the EU once Britain exits the union.

    Amin Rajan, chief executive of Create Research, the asset management consultancy, said that the tone of the UK’s negotiations with the EU is causing concern for asset managers. “They are worried that ministers are going towards a hard Brexit,” he said. “I think some of the assets would leave in that case, there is no doubt about it. The [level of assets that leaves] very much depends on the nature of the divorce.”

    The IA added that some of its members, which include asset management companies from the US and Asia, have suggested that keeping their European headquarters in the UK could “complicate their activities”.

    Christian Edelmann, head of asset management at Oliver Wyman, the consultancy, said international asset managers from beyond Europe have already begun to rethink whether to base operations in the UK.

    “No one has taken any fundamental decisions,” he said. “They are asking whether they should cover the UK only, or try to cover the UK and Europe separately — or just Europe.”

    The Alternative Investment Management Association, which represents hedge funds and other alternative managers, has already told executives to future proof their businesses by setting up entities and registering funds on the continent.

    Intermediate Capital Group, the UK-listed fund house that manages €22bn of assets, said it will probably register regulated companies in Luxembourg or Ireland to cater to EU clients before formal negotiations on a UK exit have been completed.

    “We have to start shifting resources,” said Christophe Evain, chief executive of ICG. “In terms of registering other entities, we are not going to wait for Brexit; we are not going to wait two years.”

    According to the IA’s report, the UK’s investment industry employs 37,000 people directly and 92,000 in total if associated roles are considered.

    “Clearly there may be wider ramifications on jobs associated with changing EU market access in the asset management industry,” it said.

    “At this stage it is impossible to ascertain the exact impact of a UK exit from the EU on staffing numbers in, or related to, asset management. However, [companies] interviewed this year noted that the long-term impact of Brexit would need to be judged in terms of future location of new capacity in Europe as much as potential relocation of existing personnel.”