Brexit and asset management
30 June, 2016
As Brexit is now a reality, we’ve started to work with clients on what the post-Brexit asset and wealth management environment might look like for Ireland and the UK in particular.
As one of the world’s leading financial centres, the UK is the second largest asset management centre in the world, managing approximately £5.5tn in assets.
Servicing the global asset and wealth management industry plays an important role in Ireland’s export-orientated open economy. The strong performance of the Irish funds industry in 2015 is evidence of this, with over €3.8tn of investor assets serviced by Irish service providers. Over 800 fund managers from 50+ countries have assets administered in Ireland. 18 of the top 20 global asset managers have Irish domiciled funds.
How will the industry operate post-Brexit?
As soon as the result was announced, the immediate focus for asset managers was on the markets. From talking to our clients, we know they are concerned with managing the market volatility - the natural companion of political and economic uncertainty - , as well as minimising the impact on their investors, and stabilising their businesses.
Similar to many other sectors, there is a significant relationship between the UK asset management industry and the Irish funds industry. This is demonstrated by the fact that over 340 UK based asset management firms have investment funds domiciled and/or serviced from Ireland. In my experience many of these asset managers have chosen Ireland as the domicile for the international distribution of their investment strategies while also managing UK domiciled funds for sale in their home market. Brexit should not have a material impact in such instances.
However it’s important to note that Irish funds are distributed to over 70 countries, and that the UK is a one of the more significant markets for the distribution of Irish funds using the EU UCITS passport. Typically asset managers selling Irish funds into the UK are also selling into several other markets in the EU such as Germany, France and the Netherlands, in Switzerland and even further afield in parts of Asia and Latin America.
Some of the open questions about the post-Brexit operating environment are:
- Will the UK’s exit from the EU result in the loss of EU passporting rights for UK funds and asset managers under the UCITS Directive and for non-UK funds into the UK? If so, what alternative arrangement might be put in place?
- How does the Alternative Investment Fund Managers Directive (AIFMD) provide UK asset managers with the ability to access the EU market?
- Will the UK continue to allow access to the UK for non-UK based alternative funds and if so, how?
- Should UK based asset managers continue with their MIFID II implementation projects and what EU market access could the “third country provisions” of MIFID II provide to UK based asset managers?
We will have to wait for the negotiations between the UK and the EU to conclude before all the answers become clear. However we have already started to work with our asset management clients to assess the implications of the vote for their businesses and operating models post-Brexit.
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