Viewpoint: Brexit and Its Talent Implications

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On Thursday the UK voted to leave the European Union. As predicted, the immediate impact on the fund management industry was profound; within minutes of the start of trading we saw Aberdeen Asset Management’s share price fall 32% and Schroders falling 17%.

The biggest fear for UK fund groups, outside of plunging valuations resulting in plunging assets and investors parking increasing amounts of capital in cash, is the impact that a Brexit will have on the ability and cost of UK fund groups distributing their investment services or retail products into the European Union (a significant source of revenues for UK managers).

As with all macro events, there are winners and losers, and a number of investment managers are considered to be in a position where they may even benefit from Brexit. Having spent the last few days in discussions with a number of decision makers in the investment management industry, we have concluded the following to be the most significant post-Brexit ‘front-office’ talent implications on UK and international managers:

1. Client Relationship Management: a number of managers that we have spoken with are going to be looking to ‘upskill’ their client relationship management function to try and reduce inevitable outflows, an area which for many has historically been more administrative than technical. During the financial crisis, a number of the ‘winners’ to emerge were those who opted against down-sizing this area.

2. Flexible Strategies: given the macro-economic uncertainty post-Brexit, it is forecast that UK retail/discretionary investors will want to increasingly outsource more and more of their assetallocation decisions. Already an active area of investment management hiring, we are of the view that post-Brexit this will accelerate as inflows into these strategies are forecast to increase.

3. Investment Teams in Continental Europe: post-Brexit to counter-act the forecast biases that EU investors are expected to develop towards managers from EU member states, it is expected that UK managers will look increasingly to the Continent when hiring investment teams going forward. It is said that UK managers will become more open to this as they may have to set up subsidiaries on the Continent to be allowed to continue to distribute.

4. US and Asia Pacific: with the increased hurdles to distributing in Europe, UK managers (especially the smaller groups) are expected to re-focus their distribution attention towards other markets such as the US, Far East Asia and Australia.

5. Repatriation: we expect to see, and have already heard initial reports of, leading Continental European managers taking advantage of the uncertainty facing EU citizens in the UK, by trying to attract top London-based fund managers and analysts back to the Continent.

6. High-Yielding Assets: with interest rates only going one way and the continued ‘search for yield’, managers are likely to continue developing their capabilities in asset classes including high yield, private debt and equity income alongside less developed areas like real assets.

7. Institutional distribution: initial consensus has concluded that institutional distribution into segmented mandates will be significantly less affected by post-Brexit regulations than wholesale / retail distribution. As a consequence we expect UK managers to re-focus their attention away from wholesale Central and Southern Europe towards the larger institutional markets of Northern Europe; Brexit is also expected to accelerate UK managers’ coverage of official institutions.

In summary whilst Thursday’s results will clearly lead to some short-term hurdles for the asset management industry in the UK, this is an industry that is going through a considerable period of growth and opportunities still exist for managers with strong product and channel navigation.

As an organisation, during our twenty three year history, Sheffield Haworth has supported our asset management clients throughout a number of different periods of considerable uncertainty, helping them to ensure that they have the best possible product and distribution set up to succeed regardless of the environment.