Fund managers braced for unfavorable Brexit deal

The majority of global fund managers do not believe the UK government can deliver a Brexit deal that works for the industry, according to a study by professional services firm MJ Hudson.

In total, 80 percent of UK fund managers and 63 percent of global sponsors currently investing the country said the UK Brexit negotiation team lacks enough understanding of the industry to ensure a good outcome.

Respondents to the survey described only three of Prime Minister Theresa May’s 12 negotiation objectives as beneficial to the sector. These included a drive for a free trade agreement with European markets (55 percent approval rating); providing certainty on the negotiations (53 percent in favor), and maintaining rights for EU nationals in Britain and vice versa (also viewed as favorable by 53 percent).

The most important outcome for fund managers was the continued ability to provide financial services from the UK into the EU. Managers also identified this as the most important factor for the UK’s position as a leading asset management centre in Europe.

Second was the ability to distribute UK domiciled funds in the EU under a passporting regime or similar. The report’s authors point out that the ‘third-country passport’ system already has the go-ahead of the European Securities and Markets Authority for Canada, Guernsey, Japan, Jersey, and Switzerland.

“Depending on any changes the UK may make to its current regulatory regime, it may not be very difficult at all for UK-domiciled funds to access a marketing passport, after all,” the report stated.

Fear factor

Brexit’s impact on the economy ranked as a top fear for fund managers across the UK, Europe and the rest of the world, but other concerns varied by region. UK firms also highlighted loss of staff and institutions, and losing single market access. For European managers, the threat of a poor deal or an extended period of uncertainty loomed largest in their minds. Managers from the rest of the world were most concerned about increased regulation.

“Shifts in regulatory oversight will ultimately be more important than changes in underlying portfolio assets. My biggest fear is that there will be more fragmentation of investment regulatory oversight. This is rarely good for investors, ultimately,” said one CIO from a US investment consultant.

Just over 5 percent of fund managers reported no concerns over Brexit’s effect.

The report surveyed more than 300 fund managers and investors in the UK, Europe and the rest of the world.