`Brexit' Riskier for Fund Managers Than Banks, Report Says

  • U.K. UCIT fund managers most exposed, Morgan Stanley says
  • A vote to exit the EU may prompt some firms to redomicile

U.K. asset managers such as Schroders Plc and Henderson Group Plc face bigger risks than banks to their valuations if Britain leaves the European Union and some firms may move overseas if the vote is carried, Morgan Stanley wrote in a report on Tuesday.

Hardest hit will be managers of UCITS funds, with Schroders and Henderson most "exposed" because between 30 to 40 percent of their assets under management are held within that format, analysts including Huw van Steenis and Bruce Hamilton wrote in the report. A spokesman for Schroders wasn’t immediately available to comment. An official for Henderson said any impact was “too early to tell at this stage.”

While UCITS funds are already domiciled and regulated within Europe, the teams of fund managers are typically not, the report said. That could lead to higher transactional costs and a need for more investment staff, while country-by-country distribution arrangements may have to be set up adding to the managers’ expenses.

“Britain has the second-largest asset management industry in the world with significant earnings for U.K.,” the analysts wrote. A vote to leave “could potentially be so disruptive that some U.K.-based fund houses would be looking at the option of moving their domicile.”

Morgan Stanley said it expects the government to hold the U.K. referendum on EU membership in the second half of 2016. Its base case is that a close contest would lead to “substantial uncertainty and higher asset price volatility” and contribute to a mid-year slowdown in growth.

Schroders has gained 10 percent in London trading this year, while Henderson has risen 44 percent.

(Updates with shares in final paragraph.)

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