Brexit would be “carnage” for UK fund managers, leaving them battling regulatory hurdles, experts have warned.
London is a global hub for fund management, with an estimated $6.6trn of assets in the City invested by hundreds of fund groups.
UK fund managers without a global footprint rely on regulation called the “Ucits passport” to do business throughout the European Union. Having the Ucits rubber stamp means financial services firms authorised in one member state are free to offer their products around the continent. Fund managers with Ucits authorisation welcome investors from a Europe into their investment funds.
But if Britain votes to leave the EU, many fund groups won’t be able to use the Ucits passport and would be left stranded, having to withdraw their investment funds from marketing on the continent.
They will have to set up a registration in Europe’s other big centres of fund management – Luxembourg or Dublin – but that’s a lengthy process which can take up to six months. “For a small or medium-sized entity it’s blooming expensive,” says Stuart Alexander of Gemini Investment Management.
“It would be carnage for smaller and medium fund management businesses which will have no representation in Europe. They’ll have to go out and find it.”
Smaller fund managers won’t be welcome everywhere – Luxembourg rules require €10m capital on the balance sheet for a registration although in Dublin only €300,000 is needed.
It will also be an issue for UK investors who’ve used a wealth manager to look after their finances. Many wealth managers only invest their clients’ cash into Ucits-compliant funds, because they like the tight regulatory framework it offers. “The wealth manager would have to withdraw the money from the funds on your behalf,” Alexander explains.
This won’t be a problem for global fund managers which have already set up structures and subsidiaries around Europe and the rest of the world.
A report from Morgan Stanley suggested Britain leaving the Europe would cause so many issues for fund managers it could lead to an exodus overseas. “Britain has the second-largest asset management industry in the world with significant earnings for UK.... [Brexit] could potentially be so disruptive that some UK-based fund houses would be looking at the option of moving their domicile,” the report states.