Money managers, consultants and investors are for the first time being forced to take seriously the potential for a breakup of the United Kingdom.
The uncertainty of how Scotland's vote for independence will go on Thursday has played out through the currency markets and actions of institutional investors, said money management executives.
One money manager, who asked not to be named, said his firm has come across institutional investors with 100%, 50% and zero hedges against the sterling in anticipation of — and reaction to — falls in the U.K. currency against the dollar.
A number of pension funds and money managers contacted by Pensions & Investments declined to comment for this article because of the political nature and the uncertainty of the situation. But the effects on pension funds' currency exposures and U.K. gilt and equity markets will need to be considered, even in the case of a "no' vote.
“Markets and investors are concerned the situation has changed dramatically in the course of the last week or so, particularly since” the first poll showing the "yes' camp was ahead was published last week, said one London-based hedge fund manager. “It is remarkable, looking back now, how complacent investors were on some of this.”
The uncertainty of the markets is reflected in the oscillating views of the U.K. public on the matter, with polling companies showing first strong support for a "no' to Scottish independence. That changed last week when a survey by YouGov PLC, which polls the public on various issues, showed the "yes' camp was ahead for the first time. Money management executives say that, although this result was not completely rogue — the polls had been moving in the "yes' direction for some time — the foreign exchange and equity markets have reacted.
As Pensions & Investments went to press, polls showed the "no' camp had made slight gains once again.
Politicians including U.K. Prime Minister David Cameron have been ensconced in Scotland in an effort to drum up support for the "Better Together' campaign. Financial services companies based in Scotland — including The Royal Bank of Scotland Group PLC, Standard Life PLC and National Australia Bank Ltd's subsidiary Clydesdale Bank — have continued to reassure customers and the markets of their contingency plans in the event of devolution. Plus, companies continue to grapple with what to do about a European Commission requirement for all cross-border pension funds to be fully funded at all times — potentially a problem for firms with U.K. pension funds that would be split in the event of independence. And all the while, uncertainty continues to reign supreme.