Brexit: IA reveals asset management industry concerns

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The UK’s £5.7trn asset management industry is concerned that companies will take a hit by being headquartered in the country following Brexit and during the transition period, according to the Investment Association’s annual survey on the sector.

Asset managers are also worried about the ease with which “star” European employees from countries will be able to live in the UK following its exit from the EU.

The UK runs over £1.2trn of assets on behalf of European clients, nearly 40 per cent on total European assets and more than the French, German and Italian industries combined.

But the IA has said the industry will need to seize opportunities globally following the vote.

Over 92,000 people are employed directly or indirectly by the asset management industry, the IA estimates, while those employed directly by the industry increased 5 per cent to 37,000 in 2015 from 35,100 the year before.

The report says it was too early to detail what direct impact Brexit would have on staffing numbers in the UK.

An asset management executive quoted anonymously in the report said: “As you wander around our building, a lot of our star employees come from across Europe. Whether they want to stay or would be able to stay is an element, not just for our business but for our outsourced suppliers.”

The report says firms noted that the long-term impact of Brexit would “need to be judged in terms of future location of new capacity in Europe as much as potential relocation of existing personnel”.

The concerns about the UK’s ability to act as a hub for access to the European Union comes as the industry became even more international in scope in 2015, according to the IA report.

The UK currently manages £2.2trn for international clients, but more than half of this is the £1.2trn managed for European clients. It manages £310bn for US clients and £660bn for clients in the rest of the world.

However, US firms operating in the UK are now responsible for 47 per cent of assets under management.

Chief executive of the Investment Association Chris Cummings says the UK must focus on “seizing the opportunities that are being presented to continue to grow the UK’s investment hub globally”.

Cummings says asset management acts as a “turntable of capital” and says the UK industry benefits clients through economies of scale and “unrivalled” investment expertise.

“In the last year the UK’s investment hub has become an even more global entity and that brings direct benefits to the UK economy, including contributing to net exports, employing tens of thousands of people and fueling British business.”

One anonymous survey respondent says the UK government has already been sending strong messages that it wants to export the asset management industry beyond Europe and urged that trade delegations needed to be sent to China and the US.

When it came to regulation, the IA report says moving outside the EU or EEA would turn the UK from a “regulation maker” to a “regulation taker”. It says the “direction of travel” of EU regulation may change without the influence of the FCA.

The report says: “Historic experience has shown that UK regulators have often taken different positions in key areas; for example, the Retail Distribution Review happened to a different timetable and is much more wide reaching than changes to inducement rules being implemented through MiFID II.”

However, it adds that the global nature of regulation post-2008 is likely to encourage alignment between the UK and the EU.

One survey respondent says whatever happens with regulation it will be a “hugely expensive” exercise.

Another stated: “The most direct impact [of the referendum] is that it raises questions about our ability to work for clients in Europe. People will assume that the current legislation and regulatory framework lasts for a while but they have no idea how it will change – how it will get renegotiated.”