April 2017

OPINION: Moving on

Fiona_RintoulBrexit is happening. So, what does it mean for the European fund industry? Your guess is as good as mine – better, probably. To say there is no consensus understates the diversity of views on offer. About the only thing pundits can agree on is that there will be volatility on the financial markets as the negotiations proceed – which is a bit like predicting snow in Moscow in winter. 

On other points, as always, where you stand depends on where you sit. For example, John Greenwood, the London-based chief economist at Invesco, believes that possible losses to the UK financial sector in the event of a hard exit from the European Union are grossly overstated.

“Ever since the ‘Big Bang’ in 1986, the UK has competed effectively in highly competitive global financial markets,” he says. “In terms of scale and infrastructure (office space, housing, public transport systems, availability of schools for employees’ families, etc), none of the euro area financial capitals – Frankfurt, Paris, Amsterdam, Milan, Dublin, etc – begin to compare with the City of London.”

Anyone who has tried to cross London on a bus recently may disagree, but Greenwood is not alone in playing down potential losses to the UK financial services sector from Brexit. Julian Korek, global head of compliance and regulatory consulting at Duff & Phelps, suggests that the ManCo structure could solve the problem of access to EU markets for UK-based fund managers post-Brexit and obviate the need for any damaging moves away from the UK.

“These structures are a tried-and-tested means by which fund managers can access Europe,” he says. “The local ManCo is based in the European Union and handles the regulatory burden, while the US or UK-domiciled manager markets the product and manages the portfolio.”

Having thus neatly solved the problem of access to EU markets, the UK has an opportunity to create a new funds regime to challenge the rest of the world, according Korek.  “Brexit also allows firms to create other products that can be distributed to non-EU financial centres,” he says. “I would therefore expect stronger trading flows to develop with Hong Kong, Singapore, Canada and India soon.”

Former colonies to the rescue then – though it must be said that many of them are quite keen on the global brand that is Ucits.

It is natural to look for the opportunities a new situation presents, but there is perhaps more than a whiff of ‘don’t panic’ in these pronouncements. The likes of Sun Global Investments, a wealth management company that operates across London, Dubai and Mumbai, takes a decidedly less rosy view of the UK financial sector’s future.

“With growing indications of a hard Brexit from the prime minister, any loss of passporting rights would be a big problem for the City of London,” says Mihir Kapadia, CEO and founder of Sun Global Investments. “The Financial Conduct Authority (FCA) said earlier this year that 5,500 UK companies rely on passporting rights, and if the UK cedes these rights, rival financial centres in the EU will step up efforts to woo banks and firms out of the city.”

But perhaps the most telling comment on the whole imbroglio comes from Léon Cornelissen, chief economist at Robeco. He notes that, while the UK is obsessed with Brexit, for Germany it’s just a sideshow.

“They’re much more interested in keeping the rest of the EU united while also worrying about Russia, China and the US,” he says. “So I would expect the EU to adopt a tough negotiating stance in the interests of maintaining EU unity.”

While UK newspapers print pictures of idiotic captions such as “Dover and out”’ projected on to the “iconic white cliffs of Dover” – which on any objective judgement aren’t as impressive as the white cliffs of Normandy – the other EU member states have moved on.

©2017 funds europe