July-August 2017

OPINION: They just don’t get it

Fiona_RintoulAs the UK government lumbers through the Brexit negotiations, it is painful for anyone involved in the European asset management industry to contemplate the long years of dialogue and consultation that led us to where we are today: pretty close to a single EU market for investment products.

At the end of June, the European Commission launched a proposal for a pan-European personal pension product (Pepp) – a long sought-after goal. As well as creating a standard pension product that can be sold anywhere in the EU, Pepp is ‘the legal recognition of funds for the purpose of private retirement planning”, according to Thomas Richter, chief executive director of the German funds trade body, the BVI.

The Pepp is not perfect. Proposed heterogeneous tax treatment and product design across member states could create unhelpful complexity, according to Richter. But it’s a start. In that sense, the new pan-European pensions product is a metaphor for the EU itself. It’s taken a while and it needs work, but it’s better than the alternative.

How much better is becoming clear. Based on surveys of fund managers and fund investors, volume one of a two-part report on asset management, post-Brexit from the asset management consultancy MJ Hudson unravels the potential consequences of Brexit for fund managers in the UK, the EU and the rest of the world. It doesn’t make for pleasant reading.

For UK fund managers, it says, leaving the single market means UK Ucits and alternatives will become third-country funds, subject to divergent national private placement regimes in EU countries. What is more, loss of Ucits status could affect flows from Asia-Pacific and Latin America, where the Ucits brand is popular. For EU fund managers that distribute funds in the UK, there is a danger that loss of reciprocal arrangements will threaten that business.

“The Brexit results matter to everyone in asset management, not just those in the UK, but in the EU, too,” says Matthew Hudson, CEO of MJ Hudson. “This cuts both ways. There is uncertainty for European managers and investors outside the UK over whether they can access UK-based funds, as well as sell their own funds within the UK.”

The report also highlights a weakening of status both in the UK and in the rest of the EU. The UK asset management industry is the second-largest in the world. Outside the EU, it will surely be diminished – but without the UK, the EU asset management sector will be diminished too.

It is in no one’s interests to build barriers in the European asset management industry. Does the UK government understand this? The answer appears to be no. According to the MJ Hudson report, 80% of UK fund managers believe the negotiation team does not have sufficient understanding of asset management to deliver a deal that works, and 76% of European fund managers and fund investors outside the UK agree. Neither has the UK government consulted sufficiently with the asset management industry; three-quarters of UK fund managers think consultation has been inadequate.

Bouncy pronouncements about being bold and ambitious for Britain are not enough. For one thing, this isn’t just about Britain. The UK government must consult more widely. With vital industries such as asset management. With those who voted to remain. And above all, with its European partners.

Fiona Rintoul is editorial director at Funds Europe

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