Brexit outflows could put pressure on fees

Brexit, UK, European Union, EU

Brexit outflows could place pressure on fees at asset managers, according to global analytics firm Cerulli Associates.

The research firm says it does not expect the UK’s vote to leave the EU will be a “game changer” for Europe’s asset management industry as it forecasts passporting rights will take a minimal hit.

The report says European-domiciled funds have seen net outflows of €32bn (£27.3bn) in the year to date, with mixed assets and commodities the only asset classes that posted net inflows, of €13.6bn and €700m respectively.

Henderson Global Investors alone saw £940m outflows in the two weeks following Brexit, the report says.

“The turmoil has led to something of a shakeout, and may intensify the pressure on fees,” the report states.

Barbara Wall, Europe managing director at Cerulli Associates, says: “Most firms are not expecting the outflows, which admittedly were very large, to be magically reversed in the next month.”

“However, they have already stabilised and most industry watchers expect the second half of the year to show a more positive trend.”

Cerulli does not believe that passporting and Ucits-labelling rights of UK firms with funds domiciled in Luxembourg and Dublin will be withdrawn and that any new conditions attached to those rights would be minimal.

It adds central bank interest-rate cuts and quantitative-easing extensions have provided some relief in the post-Brexit period.

“The EU would have little incentive to deprive itself of the expertise of Europe’s biggest financial centre, or to risk restrictions being placed on the export of EU goods and services into the UK,” says Wall.

This contrasts with comments this week by German lawmaker Michael Fuchs, a key ally of chancellor Angela Merkel, that the EU passporting rules are “not negotiable”.

Cerulli says the fund groups worst affected by Brexit outflows will have to increase marketing efforts to convince previous investors to return and to find new investors.

Wall says passive funds are likely to be the biggest beneficiaries as the market returns to “some sort of normality”.