U.K.-based money managers are facing yet another Brexit-related question: Will they be able to serve European Union institutional clients without an EU presence? Sources said that issue might motivate some firms to expand to or re-register in a European capital.
Negotiations on the path the U.K. will take to exit the European Union got underway June 19. Sources said current EU rules under the Institutions for Occupational Retirement Provision directives could mean money managers will be prohibited from providing portfolio management services to EU-based asset owners from the U.K. unless they authorize these services in another EU member state.
In Italy, for example, the laws on investment management are based on the IORP directives and say only Italian money managers or those established in the EU can manage assets for Italian occupational pension funds.
The implications could be huge for money managers with portfolio management operations based in the U.K. Data from the Investment Association, which represents U.K. money managers, show European clients constitute more than half of U.K. managers' overseas business, with the firms running £2.2 trillion ($2.8 trillion) on their behalf.
One money management executive has had experience with the issue, even prior to the Brexit vote. Chris Yiannakou, managing director, Europe, Middle East and Africa institutional services at Loomis Sayles Investments Ltd. in London, said his firm — a U.S. affiliate of French company Natixis Global Asset Management — could not participate in a search with an occupational pension fund in Italy. The reason: While Loomis Sayles' European distribution was managed out of London, its investment management operation for the particular strategy was based in the U.S. Mr. Yiannakou would not identify the pension fund or the strategy.
Jean-Louis Laurens, newly appointed international ambassador of Paris' Association Francaise de la Gestion Financiere, which represents French money managers, said that although the industry supports delegation, portfolio managers need to be based close to the market in which they invest. "It would make sense for global equity managers to stay in London, but I hope that European pension funds will not have to withdraw their money from the U.K. because that would be a real issue for financial stability," he said.