The UK is by far the biggest asset management centre in Europe and the second largest in the world. Yet a lot of the funds – the entities that hold clients’ money – are based legally in other centres like Ireland and Luxembourg, whose business in this area has grown enormously in the last 15 years. It is now a key part of the Luxembourg economy and has been a massive part of the remarkable development of Dublin’s Custom House Docks area since the late 1980s.
Our friends in Luxembourg and Ireland have done well. But why is it that UK investment managers have chosen to join their continental European colleagues by putting their funds there rather than in the UK?
The answer is, as ever, complex and multi-faceted. But at its heart were a number of bone-headed rules in the UK tax system that raised no revenue but brought uncertainty and expensive administration costs that made it deeply unattractive to locate funds in the UK. So Dublin and Luxembourg were able to offer a more attractive alternative, which under the EU single market could be sold to investors across Europe just as easily.
Over the last several years, the Investment Management Association (IMA) has worked closely with the Treasury and HMRC to iron out the problems in the tax system – something that officials proved very willing to approach constructively when the problem was explained. As a result, we now have a fund tax regime in the UK that is fully competitive with those in Dublin and Luxembourg.
But as yet there has been little sign of a real move back onshore. Partly this is down to habit and conservatism. Remember the saying “nobody got fired for hiring IBM”? In the funds world, Luxembourg now has that status, though interestingly I haven’t heard anybody say that about IBM for many years, showing that things don’t stay the same forever. Partly it is the formidable marketing machines that Dublin and Luxembourg, in co-operation with their governments, bring to bear.
For these reasons it won’t happen on its own. But there is a huge opportunity here for parts of the UK to have a centre like that in Dublin’s docklands. Edinburgh is already well placed to go for it. There is no reason why Cardiff, Manchester and Leeds shouldn’t too. What it requires is a little bit of political vision in those centres, a willingness to offer proper incentives, and some of the entrepreneurial flair that Dublin and Luxembourg have shown.
The IMA and the Treasury have provided the tools. Someone needs to grasp the opportunity.
Richard Saunders is chief executive of the Investment Management Association.