London's standing as the financial center of the globe is potentially under threat as a result of the U.K.'s decision to leave the European Union, but money managers are hopeful their business will emerge relatively unscathed.
Still, risks to the money management industry exist, and all eyes will be on the terms of a deal still to be hammered out by the EU and the U.K. government regarding the country's unprecedented exit from the union.
“When it comes to the impact on London's standing as a center for asset management, then of course the impact may not be felt for many years,” said Dan Kemp, Europe, the Middle East and Africa chief investment officer of Morningstar Investment Management, based in London. “If the status of London is downgraded, then it is more likely to be a gradual erosion than a big bang.” But any Brexit-related conclusions must not be taken as certain because “there are so many different directions it can go in at this stage,” he said.
Mr. Kemp said London's resilience as a financial center can be split into five “economic moats,” one of which is intangible assets — branding — which he thinks is “one of the areas most challenged by Brexit. People are starting to think about whether London's brand has been tarnished by Brexit, and whether actually that source of resilience for London, which was very strong a little while ago, is diminishing.”
Global money managers already are asking questions regarding their future operations. “Our clients, global asset managers, certainly have been reaching out to our entire platform with strategic and operational concerns following Brexit,” said Benjamin F. Phillips, principal, investment management lead strategist- consulting at Casey Quirk by Deloitte, based in New York. “The operational concerns are top of mind and similar to those any global firm with a U.K. footprint faces,” such as what happens to key talent in London and how systems will need to be adapted. “Our colleagues are already neck-deep in these questions” and others regarding regulation.
One particular issue involves how the so-called passporting clauses contained within EU regulations, such as the Alternative Investment Fund Managers Directive, are affected. Passporting is the ability of money managers to market or sell their strategies across the EU with a single product, rather than creating jurisdiction-specific offerings. The understanding among London-based sources is that under current EU rules, a money manager that wants to distribute strategies in the EU would need to have money management executives based there.