The U.K.'s position as the leading domicile for European hedge fund assets could be under threat as a result of the country's decision to leave the European Union, warned a representative of the Chartered Alternative Investment Analyst Association.
Keith Black, managing director, curriculum and exams, in a telephone interview Tuesday cited figures by alternative investment research firm Preqin showing that about 69% of European hedge fund assets are domiciled in the U.K. “That may have to change,” he said, in part because of the uncertainty over the U.K.'s position going forward regarding EU regulations.
“One thing that makes it easier to have 69% of hedge fund assets in the U.K. is you have this regulatory certainty,” Mr. Black said. “But if this (decision to leave) is a backlash against European regulation and the U.K. withdraws and doesn't want to follow (EU regulation), what will eventually happen is we will have one set of banking and fund management regulations in Europe, and potentially a second set in the U.K. This is going to create a lot of uncertainty and drive up the cost of compliance as now you (will) have EU and U.K. financial sector rules to follow.”
He said the U.K.'s decision to leave “seems to be a populist movement against globalization and immigration,” and that populist-leaning politics “doesn't make life easier for the hedge fund (and other) managers who remain in London.”
UCITS — undertakings for collective investment in transferable securities — and the EU made “it easier for firms to do business across the EU” through passporting of strategies. “But now we have to renegotiate all of these deals. We may have different rules. One of London's biggest exports is financial services, and now we will have an uncertain standing as to how we can export that into the EU.”
Mr. Black said Ireland “could end up being a big winner here — not only has it already established this UCITS business and fund administration business, but also will be one of the larger English-speaking members in the EU.” He also said it will be interesting to see if the remaining EU membership becomes more competitive in terms of bidding for future business, as in the U.S.
CAIA's next step is to survey its European and British members regarding their future plans.