Asset managers are losing patience with Britain's politicians over the slow pace of Brexit negotiations, with several deciding it is better to assume the worst and fire the starting gun on their contingency plans.
The Financial Times contacted more than 40 large asset managers with significant operations in the UK. A third outlined plans to beef up or move parts of their operation to Dublin or Luxembourg, both major fund management centres.
For those still working on detail, the clock is ticking. The focus for the industry is on making a smooth move to deliver services to clients whatever happens, says Dan Waters, managing director at ICI Global, the trade body for international fund managers.
“[WE HOPE] there is a reasonable and workable financial services agreement,” he says. “But we don’t know what that will look like. The world is scary enough as it is.”
According to the European Fund and Asset Management Association, the worst outcome is a “super hard” Brexit where there is no UK-EU deal and no co-operation partnerships in place.
“This is so complicated,” says Peter De Proft, Efama director-general. “It would be helpful if as soon as possible we could know how business will need to adapt. Clarity and transparency is politely all we can ask for.”
Already on the way
Among the groups to have firmed up their plans, Baring Asset Management, the $300 billion (€258.6 billion) US group, is to open a Dublin office, while Morgan Stanley Investment Management has said it will expand its business in the Irish capital.
Many smaller companies are, however, scrambling to finalise their arrangements. A wave of applications for licences has been submitted to authorities in Ireland and Luxembourg. Most are from smaller fund managers exploring their options.
The Commission de Surveillance du Secteur Financier, the Luxembourg financial regulator, and the Central Bank of Ireland have been swamped by applications, say market sources. Neither regulator would comment.
In the two years since the vote to leave the EU, numerous asset managers have stuck patiently to the line that they need clarity on a final deal before committing to changes.
The tone is hardening with frustrated managers saying they have to act now to protect clients in the event of a hard Brexit.
“There may be a transition deal later this year. This could buy the industry more time but we mustn’t become complacent,” said Dave Mace, who runs the Luxembourg branch of MFS, the $492 billion US fund group.
Stuart Dunbar, partner at Baillie Gifford, said: “It is future-proofing. We have to look after our European-domiciled clients.” The Edinburgh-based £178 billion (€208.7 billion) manager has not finalised its plans but it told FTfm that it will establish a management company “with substance” within the EU before next March.
“Because we have no certainty we have to take action to secure our relationships with our European clients,” Mr Dunbar said. “If you are going to do it, you have to do it with commitment. You want the office to feel like a functioning office and the cost is not insignificant.”
Jonathan Greenwold, general counsel at Aspect Capital, the $7.3 billion (€6.3 billion) London hedge fund, said it was “a case of planning for the worst but hoping for best”.
Preparing for the worst
“Brexit planning has been challenging given the politically driven and therefore unpredictable nature of the discussions,” he said.
Legg Mason, the $754 billion US investment manager which is preparing to open a Dublin office this year, echoed the view that it would prepare for a worst-case scenario. “Continued uncertainty around the future of some of the delegation and passporting of products and services has meant that, while remaining flexible, we have to take action now,” said Ed Venner, chief operating officer of global distribution.
Hermes Investment Management, which was recently part-sold to Federated Investors, has plans to open a management company in Dublin. “Of course, we keep a keen eye on the ever-evolving political landscape and look for clarity and certainty from the treasury, the regulators and other key bodies [AROUND BREXIT]”, said Saker Nusseibeh, chief executive.
“However, we recognise that we must make appropriate contingency plans in the absence of certainty, in order to ensure to the extent possible that we remain able to manage our clients’ assets in line with their expectations of us.”
Who’s making the move to Dublin
Baring Asset Management, the $300 billion US group, is to open a Dublin office and hire five people.
Hermes Investment Management already has a £9 billion Ucits range domiciled in Ireland. It will establish a management company there and appoint senior staff to oversee governance and risk management. It will also open sales branches in Germany and Denmark.
Legal & General Investment Management was given authorisation for a management company in May, which will be operational this year, The £983 billion manager is recruiting.
Legg Mason already operates self-managed Ucits and AIFM funds in Ireland. Its Dublin office will open this year - with more staff. It has applied for a Ucits licence and anticipates asking for new permissions "depending on how Brexit negotiations unfold".
Morgan Stanley Investment Management, the $469 billion US fund business, will establish an office in Dublin to complement its offshore operations there. It has made several applications to the regulator. Luxembourg will remain its largest base in the EU.
Principal Global Investors has set up a Dublin company. Its fund platform is already domiciled there. "The main challenge with Brexit has been the contingency planning because we don't know what the rules will be," says chief executive Jim McCaughan.
Standard Life Aberdeen said in February that it would establish an investment and distribution business in Dublin. The £646 billion group already has funds domiciled in both the city and Luxembourg. It is applying for a licence to become a Mifid investment company.
State Street Global Advisors, the world's third-biggest investment company with $2.8 trillion under management, has sought approval to make its Amsterdam, Brussels and Milan offices branches of its Irish entity. It expects Brexit to have a limited effect on its European operation.
Who’s making the move to Luxembourg
Columbia Threadneedle Investments is planning to beef up its Luxembourg team with "a handful" of new employees, focused on risk, client management and oversight. The £366 billion group is in the process of applying to the regulator to expand its Luxembourg-based management company. It plans to transfer 20 funds in its Oeic range to the Sicav.
Janus Henderson Investors opened an office in Luxembourg in 1985. The £265 billion group will move "a number" of oversight roles there. It already has three Ucits fund ranges, two in Luxembourg one in Ireland.
Jupiter Asset Management is establishing an office and management company in Luxembourg and says recruiting staff is "well advanced". It has applied to the regulator for approval for a management company, which will be a Ucits management company and an alternative investment fund manager.
M&G is setting up "a new legal corporate structure" in Luxembourg that will be staffed by about 30 additional hires in legal, compliance and risk roles. It has already received regulatory approval from the CSSF, the Luxembourg regulator. The group says this will be up and running before the UK's exit from the EU.
MFS already has a management company in Luxembourg, which it plans to beef up and use as its European hub post-Brexit. It will expand its team there from seven to about 20. It has applied to the regulator for permission to conduct more investment management services.
T Rowe Price, the $1 trillion US manager, has an office in Luxembourg and is in the process of seeking permission to extend its current activities. London will remain its main office in Emea with the creation of a new management company. It will not move jobs from London but may add to staff in Luxembourg as its business develops.
Still to make the call
The remainder of the managers with a big presence in the UK fall into two camps: those that cannot yet speak publicly about their plans and those that decline to provide information.
The former include Baillie Gifford, the Edinburgh manager, which says it will set up a management company with substance within the EU by the end of next March.
BlackRock, the world's biggest manager, has still to make final decisions about its post-Brexit business. It believes clients' interests will be best served by keeping its options open for as long as possible.
First State, the Australian group, already operates pooled funds out of Dublin. Its plans for an EU-domiciled subsidiary management company are at an advanced stage.
Goldman Sachs Asset Management has still to decide whether its EU management company will be in Ireland or Luxembourg but it is talking to regulators. It expects to move "a small number of people".
Man Group will take "the necessary steps" to avoid disruption. It already has licensed entities in the Netherlands, Ireland and Liechtenstein. It says it may "enhance its EU footprint as regulations become clearer".
Another manager that has not yet finalised its Brexit strategy is Old Mutual Global Investors. The company serves its European clients primarily via its Ireland-domiciled fund range.
Those that declined to provide information included BlueBay, Franklin Templeton, GAM, HSBC Asset Management, Investec, Northern Trust, SEI Investments, Vanguard and Wellington.
No major change
AllianzGI, which manages €513 billion, says its strength in Europe and growing business in the UK put it in a good position to deal with Brexit. Chief executive Andreas Utermann works from London.
Europe's largest fund manager, Amundi, has its HQ in France and does not expect to change how it services clients. Its funds are available to UK investors via Sicav feeders.
Aspect Capital, the $7.3 billion UK hedge fund, has offices in London, Connecticut and Hong Kong. Another office in the EU is unlikely but it would consider using a third-party platform.
Aviva Investors, which manages £353 billion, says it will serve EU clients after Brexit via its Luxembourg Sicav range. It already has a presence in France and Ireland.
Axa Investment Managers has fund management centres in Paris and London. It has UK-domiciled fund ranges catering for British clients as well as Luxembourg and Ireland ranges for cross-border clients.
BMO Global, the Canadian owner of F&C Asset Management, says there is no need for substantial changes.
BNY Mellon Investment Management, along with its subsidiary Insight Investment, the UK's second-biggest manager by assets, and its boutiques including Newton, will use their legal entities in Luxembourg and Ireland to service EU clients. They have applied to regulators for extra permissions.
Capital Group, the $1.7 trillion US investment house, says its operations in Geneva, London and Luxembourg give it enough heft in Europe to compete post-Brexit.
Invesco, which owns Invesco Perpetual in the UK, has separate fund ranges for clients in different EU jurisdictions and client-relationship teams in various countries to meet local need.
Fidelity International, the $255 billion Bermuda-based asset manager, already has offices in Luxembourg and Dublin. It employs 920 people in Europe outside the UK. It has been hiring in its Dublin office, which employees more than 250 workers, but denied this was related to Brexit.
JPMorgan Asset Management has operated in Luxembourg for more than 30 years, with $300bn invested in its 180 Luxembourg-domiciled funds. The office has 170 staff.
Kames Capital, a subsidiary of Netherlands-based Aegon Asset Management, has had a Dublin operation since 2007 and sells to 16 European countries including the UK. Aegon has large offices in Frankfurt and Madrid.
Swiss-owned Pictet Asset Management is watching Brexit talks closely, but feels it has enough offices to cope with any fallout.
Pimco, the $1.8 trillion bond manager, has bases in London and Munich and funds domiciled in Ireland and Luxembourg. It does not expect significant disruption.
About 80 per cent of Polar Capital's £12 billion assets are held in a Dublin Ucits umbrella fund. It expects to hire more people in the EU as part of its diversification strategy.
Royal London Asset Management, the £113 billion fund group, says it will not set up an office in the EU but provided no details.
US manager Russell Investments has offices in Paris, Milan, Frankfurt, Amsterdam and London, and two European fund ranges. The main one is domiciled in Ireland while it also has authorised funds in the UK.
Schroders, the UK's second-biggest listed fund group, employs more than 700 staff in nine EU offices outside the UK, including 250 in Luxembourg. The £447bn fund manager has obtained additional permissions across the EU, as well as Iceland, Norway and Liechtenstein, to continue to serve European institutional clients. – Copyright The Financial Times Limited 2018