The post-Brexit scenario might not be as bleak as it is seems for asset management firms despite falls in their share prices and short-term fund outflows, experts argue.
In the weeks following the EU referendum, a number of large FSTE 100 asset management firms have already announced plans to move staff and launch funds in Europe in preparation for the UK leaving the EU.
At the same time, three-quarters of funds in the UK equity sectors experienced negative returns in the week following Brexit, with the Jupiter UK Growth fund suffering the worst performance at -13.9 per cent.
But PwC UK asset management leader Mark Pugh says the way Brexit has played out so far suggests there will not be a big impact on asset managers. “Big brands are still reporting net inflows.”
For instance, this week Liontrust Asset Management reported £66m of net inflows in the second quarter of this year despite the volatility sparked by the run-up to and after the Brexit vote. That is compared with outflows of £7m for the same period a year ago.
However, experts say firms must engage on a Brexit scenario planning including passporting of products, location of managers and employee-related issues.
Pugh says: “In order to be able to serve better your clients in the EU, businesses might transfer part of their operations out of the UK but many of the larger global groups already have EU operations so the expectation is that any moves shouldn’t be problematic.”
Columbia Threadneedle recently said it would expand its existing Luxembourg office to ensure it can still serve EU clients. As part of the plans it will move some fund managers to Europe and will also replicate some funds from its UK Oeic range into its Sicav range. Separately, M&G is bolstering its Dublin presence by building Irish funds.
But Chelsea Financial managing director Darius McDermott says “sensible people” within these companies are setting up plans but not putting them in place before the official terms of the negotiations with Europe, so “they won’t pull any trigger yet”.
Pugh says there was already “noise” before the vote, with firms willing to move staff out of the UK not just because of fears of a Brexit.
Last week, Fidelity International said it will relocate 100 of its 2,000 UK staff to its Dublin office as part of “a long-term strategy”.
On passporting rights, Hargreaves Lansdown senior analyst Laith Khalaf argues it is possible that fund passporting rules will not change as a result of Brexit.
He says: “If those passporting rights are lost, the bigger UK-focused asset managers have more to lose because they have a bigger fund business.”
But Khalaf says: “Even if they lose the fund passport they will adapt, this may play out better than expected.”
In the week after the vote, Legal & General and Standard Life Investments’ share prices fell by 20 per cent and 14.5 per cent respectively. Prudential, including its investment arm M&G, fell 7.5 per cent but this was cushioned by revenues coming from Asia, Khalaf notes.
Old Mutual Global Investors’ share price was instead up 2.2 per cent in the week after the referendum, as the business was also helped by international revenues.
McDermott says: “The industry has been finding this calendar year very difficult in terms of fund flows anyway although the Brexit vote contributed to that.”
Aberdeen, which has been recently relegated to the FTSE250, saw its shares fall by 10.6 per cent in the week after the vote.
Khalaf says: “Aberdeen already had challenges and potentially flows may not be as good in the future. The firm might move out of emerging markets and concentrate on their current diversification strategy in the multi-asset and multi-manager proposition.”