by Michael Zielenziger
Until last June, the intimate financial links between the United Kingdom and the rest of the European Union seemed unassailable. London served as a hub for billions in investment, taking in money from pension funds and individual investors across Europe and reinvesting those funds around the globe to capture higher yields. Indeed, some 40% of assets managed in the UK today originate in other nations and the UK represents a center of global expertise in finance.
Now that British voters have chosen to leave the EU, however, the implications of Brexit are significant for the asset management industry in the UK, which in 2015 alone earned about £17 billion in revenue, created around 90,000 well-paying jobs, and contributed about 1% to the GDP of the UK. Some £2 trillion of the assets managed in the UK today come from clients in other parts of the EU, and London has long served as a magnet for top talent in underwriting, investment and financial analysis.
Oxford Economics, working with EY in London, has produced a new paper that clarifies the issues—and the opportunities—for the asset management industry that the Brexit vote unleashes. One key principle it emphasizes is that not just UK-based asset managers could be harmed by upcoming Brexit negotiations—their European clients could be as well. Even as the UK withdraws from the EU, steps should be taken to ensure that no clients of asset management firms are adversely affected.
That means that both the EU and UK should agree on a framework that ensures broad regulatory coherence and mutual recognition so that EU clients can continue to use UK asset managers, and UK investors can continue to safely invest in the EU.
Brexit also offers the asset management industry an opportunity, however, to unleash needed change. After all, the rise of passive fund managers, robo-advisers, the rapid improvement in Big Data analytics, the power of mobile applications to engage clients, and the rise of new fintech companies all signal that asset managers must begin to rethink their strategies and business models.
The asset management industry may not have liked the vote, but Brexit can serve as a useful, catalyzing moment that creates the right context for asset managers to engage and re-evaluate long-term strategies. This is a potential crisis that should not be wasted.
Asset management firms should use the Brexit vote as an opportunity to assess:
- How their firms are structured to compete in a post-Brexit world;
- What capabilities firms may need to transfer to Europe after the break up –and where they best might be housed;
- What an effective and resilient asset management firm will look like in the 21st century;
- What technologies will be necessary to engage new customer and retain competitiveness.
The next generation of asset managers will succeed by investing in innovation, thinking hard about new frontiers of alternative investment, like infrastructure and sustainability projects, and looking beyond the EU for new customers and new investment opportunities. While the negotiations between London and Brussels over the precise nature of Brexit will be complex, asset management firms can begin the transition now by asking themselves the right questions.
To read the full EY report go here.
Michael Zielenziger is a Managing Editor of Thought Leadership. He has worked on a range of topics including the impacts of globalization, workforce issues, the interactions of media and technology, the changing US healthcare environment, and the prospects for emerging markets, with a special focus on Asia.