Funds face complex changes

UK fund managers face the loss of passporting rights following the referendum vote and will potentially have to re-domicile funds to access Europe, say experts. But EU-based fund management businesses potentially face a similar challenge in accessing the UK market, which remains an attractive investment centre for both traditional and alternative assets. Owen Lysak, a lawyer at Clifford Chance, said: “The critical issues will include the likely loss of passporting rights, which could force changes to the business model for some funds, from changes to marketing approaches to re-domiciling the fund itself.” And he warned there are possible consequences for UK fund firms of losing the European ‘brand’ for their investment vehicles. “Lower levels of investor appetite for investing into non-EU structures would also become relevant for UK-managed and UK-located fund structures." However, David Bailey, director of marketing and communications at Augentius, a private equity fund administrator, said that UK funds and their underlying investments should remain an attractive destination for European money, given that the UK is Europe’s second-largest economy. He highlighted the fact of third-country access for non-EU managers (which would be relevant to UK funds) is a reality now, and that there is an appetite by EU-based investors to invest with managers across the world. “…[the European Securities and Markets Authority] will shortly be reporting on the extension of passporting to a number of third-party countries, which itself could transform the way in which non-EU managers are able to access European investors,” Bailey said. And on investor appetite, he said: “The reality is that EU-domiciled investors are keen to invest in private equity and real estate managers the world over, diversifying their portfolios in terms of both geography and asset classes. While UK managers going forward may need to create slightly more complex multi-jurisdictional structures to accommodate the change, the fundamentals will remain in place.” The Financial Conduct Authority this morning said financial services firms should keep implementing EU regulations for the time being. ©2016 funds europe

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