BREXIT MEANS BREXIT

Gary Corcoran

Editorial director, Portfolio Adviser

While politicians play with our jobs, posturing ahead of the trade negotiations between the UK and the EU, we felt it was more sensible to have a grown-up conversation about what our industry might look like as the UK drifts slowly away from the EU during the next two-and-a-bit years.

But we do not know what the new rules are going to be, so nobody has any answers. As far as UK/Europe cross-border product providers and portfolio managers are concerned, the three main considerations are:

How might fund distribution change?

How can the UK still influence EU regulation?

What has been the impact on investment?

And that is why we invited product and distribution experts from fund groups based in the UK, Dublin and Luxembourg, all with more than a bricks and mortar presence in the UK and the EU, to discuss the issues.

 

Where are we now? As long as the UK is a member of the EU, the FCA is classed as a ‘competent authority’ capable of granting authorisation to fund groups to trade under the Ucits directive.

 

Where will we be? The Ucits directive is an EU initiative. When the UK leaves the EU that status will be lost to UK-domiciled funds. Legally, UK-domiciled Ucits funds will cease to be Ucits.

 

Discuss!

Meet the panel.

Hugh Prendergast

Head of strategic product and marketing, Pioneer

Robin Stoakley

Director, intermediary division, Schroders

Jasper Berens

MD, head of the UK funds business, JP Morgan Asset Management

Jose Cosio

MD, global intermediaries, AB

Nick Ring

Global head of distribution, Jupiter

Distribution and passporting

Nick Ring, global head of distribution, Jupiter:

 

Anybody who wants to sell cross-border has to make sure they have a Ucits passport, whether it’s the actual Ucits passport or a Ucits equivalent. As long as the rules and regulations are consistent, I think the reality is everyone is going to continue to offer Ucits funds.

 

Jasper Berens, MD, head of the UK funds business, JP Morgan Asset Management:

 

It all depends whether the UK is granted passporting rights. If it isn’t, then it’s got to get equivalence [officially, a status of ‘equivalent jurisdiction’]. Then, we will have to do everything that Europe would expect us to do, but without having a seat at the table to negotiate.

 

There is absolutely no point in us as a fund management industry saying Brexit is going to be a problem, then come out two months later and say it isn’t going to be a problem. It is still going to be an issue.

 

Hugh Prendergast, head of strategic product and marketing, Pioneer:

 

I think the answer will be equivalence. It’s the best outcome for both sides but in the unlikely event that that isn’t achievable, equivalence will be absolutely crucial.

£223 Bn
44%

UK exports of goods and services to EU member states in 2015

Share of UK exports accounted

for by the EU in 2015

Source: businessmapcentre.com

"There is absolutely no point in us as a fund management industry saying Brexit is going to be a problem, then come out two months later and say it isn’t going to be a problem."

Jasper Berens, MD, head of the UK funds business, JP Morgan Asset Management

The UK not at the regulatory table

Jasper Berens:

 

What does concern me is an issue around Mifid II, which will be implemented next year when we will not have yet left Europe, and won’t do for another 18 months at least after that, depending on when Article 50 is invoked.

 

Until 24 June we were at the negotiating table on Mifid II. Suddenly, we’re no longer at the table. But we will have to passport immediately - and potentially forever - over something on which we’ve not been party to the negotiations.

 

Nick Ring:

 

There is a real concern. No longer being at the table to help influence rules we are ultimately going to have to adopt is far from an ideal situation, but it is not calamitous.

 

Jasper Berens:

 

What I worry about is that fund distribution in Europe is bank-led; fund distribution in the UK is wealth management-led, principally IFA-led. Therefore, Mifid, which ultimately governs distribution, may make changes that are going to be very difficult for us to implement in the UK. But we would have to because we’re in Europe for the next two years, and then we’ll move to passporting or equivalency. We then may have to maintain rules that we did not have the ability to negotiate.

 

Most of Mifid II has been written, so we should

be OK.

"No longer being at the table to help influence rules we are ultimately going to have to adopt is far from an ideal situation."

Nick Ring, global head of distribution, Jupiter

HOW

BRITAIN VOTED TO LEAVE

ROLLOVER EACH SECTION

Source: BBC

Impact on UK-based fund groups
Will investors trust larger, pan-European/global fund groups more than predominantly UK-based businesses?

Robin Stoakley, director, intermediary division, Schroders:

 

I don’t think so. A UK-based private bank investing for UK clients in a UK-domiciled structure, will very happily go to a UK firm.

 

Jasper Berens:

 

It’s almost certainly going to be fine in the UK but there may be an issue with a UK company selling Oeics into Europe where they have historically been very successful. If negotiations go badly around passporting and equivalency, European clients may want to take their money out so the fund manager will see constant outflows. UK clients may look at that and ask ‘Why do I want to invest in that?’. I’m not expecting that to be the case but that could be one of the issues.

What are other people saying?

Select the tabs below to find out more.

Source: BBC

European Parliament

European Commission

European Central Bank

"Brexit is not a liability. I see it more as an opportunity...Our duty, our responsibility is to make Brexit a success for Europe, for all the citizens of Europe. And it is a possibility to end the dramatic complexity of our institutions. Brexit is not a matter of punishment, it's not a matter of revenge."


Guy Verhofstadt, European Parliament's Brexit negotiator

"Whenever I've spoken about a Brexit, this was with restraint that one is not actually used to from me. I have little to say, because the European Commission is very unpopular in the United Kingdom. Under these circumstances it was intelligent and right to be as silent as possible."


European Commission President Jean-Claude Juncker

"The ECB is ready for any outcome... The ECB has a view that the UK should remain in the EU, because the European Union would benefit from its presence. And we believe the UK would benefit from being in the European Union too."


European Central Bank President Mario Draghi

Jose Cosio, MD, global intermediaries, AB:

 

If boutique managers that have historically been accessible in continental Europe decide to retrench back into the UK, investors will see a more limited choice and a restriction on managers to which they have historically had access.

 

Hugh Prendergast:

 

Will investors hold flows back to a UK-domiciled company? The answer is ‘yes’. This probably could accelerate having a Europe-friendly, and Asia and offshore Latin-American friendly vehicle that’s domiciled in Europe.

"Will investors hold flows back to a UK-domiciled company? The answer is ‘yes’."

Hugh Prendergast, head of strategic product and marketing, Pioneer

Oeics or Sicavs?

Nick Ring:

 

Rather than, say, not selling a UK Oeic into the EU, you have an additional step to go through in the sales process if you do wish to sell a UK vehicle into the continent.  If you’re selling a Luxembourg fund into the EU, the buyers just want to know about the nature of fund, the performance, the fund manager etc. If you’re selling a UK vehicle, you need to do all of that plus you have to reassure them it has the same kind of tax status as Sicav and works in a similar way.  If people are comfortable with that then they buy it.

 

Robin Stoakley:

 

If I were a ManCo without a Sicav fund range I would almost certainly be launching a Luxembourg Sicav as soon as possible because you can’t afford not to, except you’re going to have all the problems of a lack of performance, no track record etc.

 

Hugh Prendergast:

 

We’re selling Luxembourg-domiciled products everywhere from Santiago to Taipei, and the almost universal recognition [of Sicav] is a huge asset.

 

Jose Cosio:

 

Our European headquarters is in the UK but our entire Ucits line-up is in Luxembourg. We sell FCP Ucits, a Sicav platform, so we’re coming into the UK from Luxembourg and would have to design a UK Oeic platform to really penetrate the IFA/retail market here in the UK.

 

Hugh Prendergast:

 

From our perspective of a company that is passporting funds into the UK, as a non-UK asset manager it could get more expensive because as the rules start to differ between the UK and Europe, you’re going to have to have more support infrastructure, legal and compliance etc. physically located in the UK to support the rules and needs of the local regulator.

"We’re coming into the UK from Luxembourg and would have to design a UK Oeic platform."

Jose Cosio, MD, global intermediaries, AB

Immediate investment reaction

Robin Stoakley:

 

In the UK, it’s a risk-off mentality for the time being and UK wealth managers are running historically high cash positions. As we get into Q4, provided there’s no other major shock, for UK managers Brexit will be the norm - a little blip and we’ll carry on. There’ll be the odd significant shock and people will run for the hills, but then they’ll come back.

 

Hugh Prendergast:

 

We’ve seen a very sustained demand for what we call ‘target income’. So, it’s some selective single stock call writing to enhance income, and making that trade-off between potentially giving up upside versus enhancing the income. The other area is sustained demand for liquid alternatives, probably more so in the low risk space.  So, equity market neutral, or relatively conservative multi-strategies. Investors are looking for something that’s safe, a cash equivalent, or a fixed income equivalent.

The post-Brexit pound

Press play to see its performance.

Jasper Berens:

 

Neither of those two trends are going away because people will always want income. And they want different sources of alpha, as it becomes increasingly scarce in this low interest rate environment.

"There’ll be the odd shock and people will run for the hills. But then they'll come back."

Robin Stoakley, director, intermediary division, Schroders

So what are the big concerns?

Jasper Berens:

 

The UK fund management industry is a net exporter, providing 6% of the UK’s exports. In my view, it is absolutely in the government’s interests to see how we can protect our asset management industry.

 

Nick Ring:

 

We must hope the government is thinking about the fact we are a big exporter, and that what we end up with in terms of our domestic rules and regulations can have a significant impact on our ability to do business in a more challenging environment outside the UK.

 

Jose Cosio:

 

Given a lot of the backbone behind Mifid and so on was done by regulators in the UK, hopefully that’s something we can passport continuously so we don’t have to start splitting between continental Europe and the UK. If we see the situation change, we are going to have to staff more compliance people, whether that is in Luxembourg or in the UK, just to prepare for this.

 

Robin Stoakley:

 

One area that could be a real headache for all of us because of this is another Scottish referendum, if they vote to leave and adopt the euro. We all have lots of Scottish investors on our books. How will that work?

 

Hugh Prendergast:

 

From the perspective of a company that is currently passporting funds into the UK, as a non-UK asset manager it could get more expensive. As the rules start to differ between the UK and Europe, you’re going to have to have more infrastructure, legal and compliance etc physically located in the UK to support the rules and needs of the local regulator.

Integration within the European Union

Share of total trade, population and investment from and to other EU countries, 2015, %

Britain

Trade

Population

Investment

France

5%
54%
33%
28%
2%
45%

Imports

Immigration

FDI from EU

Exports

Emigrants

FDI into EU

Trade

Population

Investment

Germany

3%
69%
43%
37%
1%
59%

Imports

Immigration

FDI from EU

Exports

Emigrants

FDI into EU

Trade

Population

Investment

Italy

5%
68%
42%
38%
1%
58%

Imports

Immigration

FDI from EU

Exports

Emigrants

FDI into EU

Trade

Population

Investment

3%
59%
48%
41%
2%
55%

Source: The Economist

Imports

Immigration

FDI from EU

Exports

Emigrants

FDI into EU

Biographies

Select the tabs below for more

  • Jasper Berens, MD, head of the UK funds business, JP Morgan Asset Management

    An employee since 1997, Jasper was previously head of UK sales from 2005 to 2012. Prior to that, he was head of asset management sales. He started his career in fund sales at Guinness Flight and Hambros in 1993. He sits on the global funds management operating committee and the UK and European investment management committees, and is also a member of the Investment Association’s investment funds committee.

  • Jose Cosio, MD, global intermediaries, AB

    Based in London, Jose’s focus is on growing the firm’s business with global private bank and intermediaries. Prior to joining AB in 2010, he spent four years at Old Mutual (Bermuda), where he most recently held the position of director of south-east US, Latin American and Caribbean sales. From 2002 to 2005, he worked at Wachovia as a financial adviser managing assets for non-US investors.

  • Hugh Prendergast, head of strategic product and marketing, Pioneer

    Hugh leads the strategic product and marketing team for western Europe and international at Pioneer Investments. He has worked in the investment industry since 1995 and before joining Pioneer Investments in 2001, he worked as both a stockbroker to institutional clients and as a financial journalist.

  • Nick Ring, global head of distribution, Jupiter

    Nick joined Jupiter in September 2015 from Columbia Threadneedle. He has 28 years’ experience in the investment industry across a variety of distribution, product, strategy and general management positions.

     

    He left Columbia Threadneedle as global head of product, having also chaired the client and distribution services committee. Prior to Columbia Threadneedle he worked at Northern Trust, becoming MD, head of international wealth management services. He has also had roles at KPMG, Gartmore and Prudential.

  • Robin Stoakley, director, intermediary division, Schroders

    Robin joined Schroders in 1989 from County NatWest Investment Management and has been head of UK intermediary since 2002. Prior to this he was appointed director of Schroders Asia in 1997 and in 1998 returned to London as Schroder Unit Trust’s director of client services. He was transferred in 1996 to Schroders Asia in Hong Kong to take responsibility for developing the firm’s mutual fund business in Hong Kong and Taiwan.

Copyright 2016. Last Word Media

 

Published by Last Word Media (UK) Limited, Fleet House, 1st Floor, 59-61 Clerkenwell Road, London, EC1M 5LA. Copyright (c) 2016. All rights reserved. Company Reg. No. 05573633. VAT. No. 872 411 728. ISSN 2397-284X

A

Jasper Berens:

 

What does concern me is an issue around Mifid II, which will be implemented next year when we will not have yet left Europe, and won’t do for another 18 months at least after that, depending on when Article 50 is invoked.

 

Until 24 June we were at the negotiating table on Mifid II. Suddenly, we’re no longer at the table. But we will have to passport immediately - and potentially forever - over something on which we’ve not been party to the negotiations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nick Ring:

 

There is a real concern. No longer being at the table to help influence rules we are ultimately going to have to adopt is far from an ideal situation, but it is not calamitous.

 

Jasper Berens:

 

What I worry about is that fund distribution in Europe is bank-led; fund distribution in the UK is wealth management-led, principally IFA-led. Therefore, Mifid, which ultimately governs distribution, may make changes that are going to be very difficult for us to implement in the UK. But we would have to because we’re in Europe for the next two years, and then we’ll move to passporting or equivalency. We then may have to maintain rules that we did not have the ability to negotiate.

 

Most of Mifid II has been written, so we should be OK.

European Parliament

European Commission

European Central Bank

"Brexit is not a liability. I see it as an opportunity...Our duty, our responsibility is to make Brexit a success for Europe. And it is a possibility to end the dramatic complexity of our institutions. Brexit is not a matter of punishment, it's not a matter of revenge."

 

Guy Verhofstadt, European Parliament's Brexit negotiator

"Whenever I've spoken about a Brexit, this was with restraint that one is not actually used to from me. I have little to say, because the European Commission is very unpopular in the United Kingdom. Under the circumstances it was intelligent and right to be as silent as possible."

 

European Commission President Jean-Claude Juncker

"The ECB is ready for any outcome...The ECB has a view that the UK should remain in the EU, because the European Union would benefit from its presence. And we believe the UK would benefit from being in the European Union too."

 

European Central Bank President Mario Draghi

Jasper Berens:

 

The UK fund management industry is a net exporter, providing 6% of the UK’s exports. In my view, it is absolutely in the government’s interests to see how we can protect our asset management industry.

 

Nick Ring:

 

We must hope the government is thinking about the fact we are a big exporter, and that what we end up with in terms of our domestic rules and regulations can have a significant impact on our ability to do business in a more challenging environment outside the UK.

Jose Cosio:

 

Given a lot of the backbone behind Mifid and so on was done by regulators in the UK, hopefully that’s something we can passport continuously so we don’t have to start splitting between continental Europe and the UK. If we see the situation change, we are going to have to staff more compliance people, whether that is in Luxembourg or in the UK, just to prepare for this.

 

Robin Stoakley:

 

One area that could be a real headache for all of us because of this is another Scottish referendum, if they vote to leave and adopt the euro. We all have lots of Scottish investors on our books. How will that work?

 

Hugh Prendergast:

 

From the perspective of a company that is currently passporting funds into the UK, as a non-UK asset manager it could get more expensive. As the rules start to differ between the UK and Europe, you’re going to have to have more infrastructure, legal and compliance etc physically located in the UK to support the rules and needs of the local regulator.

"We just need to get on with it."

Nick Ring, Global head of distribution, Jupiter

Trade

Population

Investment

54 %
45 %
5 %
2 %
33 %
28 %

Imports

Exports

Immigration

Emigrants

FDI from EU

FDI into EU

Trade

Population

Investment

69 %
59 %
3 %
1 %
43 %
37 %

Imports

Exports

Immigration

Emigrants

FDI from EU

FDI into EU

Trade

Population

Investment

68 %
58 %
5 %
1 %
42 %
38 %

Imports

Exports

Immigration

Emigrants

FDI from EU

FDI into EU

Robin Stoakley, director, intermediary division, Schroders:

 

I don’t think so. A UK-based private bank investing for UK clients in a UK-domiciled structure, will very happily go to a UK firm.

 

Jasper Berens:

 

It’s almost certainly going to be fine in the UK but there may be an issue with a UK company selling Oeics into Europe where they have historically been very successful. If negotiations go badly around passporting and equivalency, European clients may want to take their money out so the fund manager will see constant outflows. UK clients may look at that and ask ‘Why do I want to invest in that?’. I’m not expecting that to be the case but that could be one of the issues.

 

Jose Cosio, MD, global intermediaries, AB:

 

If boutique managers that have historically been accessible in continental Europe decide to retrench back into the UK, investors will see a more limited choice and a restriction on managers to which they have historically had access.

 

Hugh Prendergast:

 

Will investors hold flows back to a UK-domiciled company? The answer is ‘yes’. This probably could accelerate having a Europe-friendly, and Asia and offshore Latin-American friendly vehicle that’s domiciled in Europe.

Robin Stoakley:

 

In the UK, it’s a risk-off mentality for the time being and UK wealth managers are running historically high cash positions. As we get into Q4, provided there’s no other major shock, for UK managers Brexit will be the norm - a little blip and we’ll carry on. There’ll be the odd significant shock and people will run for the hills, but then they’ll come back.

 

Hugh Prendergast:

 

We’ve seen a very sustained demand for what we call ‘target income’. So, it’s some selective single stock call writing to enhance income, and making that trade-off between potentially giving up upside versus enhancing the income. The other area is sustained demand for liquid alternatives, probably more so in the low risk space.  So, equity market neutral, or relatively conservative multi-strategies. Investors are looking for something that’s safe, a cash equivalent, or a fixed income equivalent.

 

Jasper Berens:

 

Neither of those two trends are going away because people will always want income. And they want different sources of alpha, as it becomes increasingly scarce in this low interest rate environment.

"We just need to get on with it."

Nick Ring, global head of distribution, Jupiter

Copyright 2016. Last Word Media

 

Published by Last Word Media (UK) Limited, Fleet House, 1st Floor, 59-61 Clerkenwell Road, London, EC1M 5LA. Copyright (c) 2016. All rights reserved. Company Reg. No. 05573633. VAT. No. 872 411 728. ISSN 2397-284X