Asset managers fine tune Brexit contingency plans
Britain’s departure from EU push fund houses to bolster presence in mainland Europe
Britain’s departure from the EU has pushed many of the UK’s largest investment companies to take action to protect their businesses even before formal negotiations over the terms of Brexit begin.
Jupiter, M&G, Legal & General Investment Management and Intermediate Capital Group are among the fund houses to have bolstered their presence in mainland Europe this year as investment managers attempt to Brexit-proof their businesses. Blackstone and Legg Mason, the US asset managers, have also strengthened their non-UK operations.
Contingency plans include adding staff to European operations, applying for additional licenses from EU-based regulators and establishing new offices on the continent.
The moves have intensified fears that Brexit will damage the UK’s position as Europe’s financial centre, as companies from other sectors, including banks, insurers and wealth managers, also begin to reduce their reliance on the City.
Sean Tuffy, head of strategy for Europe at Brown Brothers Harriman, the US bank, said: “Most asset managers are enacting plans to Brexit-proof parts of their businesses. What will be damaging to the City is death by a thousand cuts.
“You won’t see mass migration, but you will see slippage [of jobs moving away from the UK], as well as unseen losses — jobs that would have gone to London and now go somewhere else.”
Jupiter, the FTSE 250-listed asset manager, has decided to set up a new EU-based entity and to change the legal status of its branches across Europe as part of its contingency plan.
Maarten Slendebroek, chief executive of Jupiter, told FTfm: “There are a few things we need to do and will do. Our overseas subsidiaries are small and hang on to the UK entity. We will rewire that to hang on to the European entity. It will cost us man hours and a couple of hundred thousand pounds.”
M&G, the London-based fund company that oversees £165bn of assets, has cemented its presence in Luxembourg by applying for two licenses from the local regulator and establishing a new management company there. The company, which already employs 10 staff in the grand duchy, will add new employees across legal, compliance and risk roles.
M&G said the licenses should enable the company to continue selling funds across the continent “regardless of the outcome of the political negotiations on financial services after the UK’s exit from the EU”.
LGIM, the UK’s largest investment house, has decided to create a division in Dublin to ensure it can “continue to provide access to European markets”, according to an internal memo sent to staff last week.
The concern across the industry is that licenses granted by the UK regulator — particularly the coveted Mifid license — that enable fund companies to access European clients, will become void if Britain loses access to the single market. This has pushed investment managers to strengthen their presence on the continent to have a firmer chance of not being locked out of European fundraising.
Owen Lysak, a partner at Clifford Chance, the law firm, said: “Asset managers are really ramping up their Brexit contingency planning, with new structures being finalised and locations selected. The reality is that, with two years to go until a potential hard Brexit, companies need to act soon, far ahead of the point where a deal is likely to emerge.”
ICG, the UK-listed asset manager, opened an office in Luxembourg last December and hired five employees. It has also applied for an Alternative Investment Fund Managers license from the local regulator, which should enable the company to continue selling its specialised debt funds across the continent.
Blackstone, the world’s largest alternative investment manager, received its AIFM license from the Luxembourg watchdog in May, according to regulatory filings.
Legg Mason, the US-listed fund house, plans to apply for a so-called Ucits license from the Irish regulator, which should enable it to continue selling mutual funds across the EU.
“Most asset managers have come to the conclusion that Brexit will be a hard Brexit. The question is how hard,” Mr Tuffy said. “Most are looking at what substance they will need to set up in Europe to get ready for that. None of these things can be done overnight. If you accept the premise that you cannot rely on a UK Mifid license, you will need to have substance somewhere else.”
Despite concerns about the impact of Brexit on the UK, a number of international asset managers have strengthened their presence in London in recent months, including Unigestion, the Swiss fund manager, PSP, the Canadian pension scheme, and OppenheimerFunds, the US investment company.
Schroders, the UK’s largest listed asset manager, and Ashmore, the London-based fund house, have also prepared Brexit contingency plans, although they have held back from making operational changes.
Peter Harrison, chief executive of Schroders, said the company would wait to see where banks shifted their operations to in Europe before deciding where and whether to apply for an EU Mifid licence.
“We are now seeing all the banks starting to figure out where they will [establish] their branch networks. Once it is clear where the banks are basing themselves, then we can follow that capital. It may not be right to put it in Luxembourg. We are following the tea leaves quite closely.”
Ashmore is in a more precarious position than Schroders, as it does not have a presence in mainland Europe, but sources more than a quarter of its assets under management from EU-based clients.
Tom Shippey, chief financial officer of Ashmore, said recently: “It could be that we need greater substance in Europe. We have plans, but have not acted on them. Until there is greater clarity, we are not moving.”
