This Investor Wouldn't Buy a U.K. Asset Manager at Any PriceBy
La Banque Postale AM boss flags loss of passporting, synergies
Roy says he’s exploring mergers, just not with U.K. firms
Brexit has so damaged the allure of U.K. asset managers as takeover targets that one French investor said he wouldn’t be a buyer at any price.
Daniel Roy, head of La Banque Postale Asset Management in Paris, said Britain’s departure from the European Union is such a “bad affair” for the nation’s money managers that they’re likely to miss out on the wave of mergers and acquisitions that’s sweeping through the global industry.
Not only does Brexit jeopardize a firm’s ability to sell funds across the EU, it also diminishes cost-sharing synergies with potential merger partners, said Roy, whose firm oversees about 217 billion euros ($256 billion). His comments are all the more significant because Roy said he’s “permanently” exploring deals with foreign rivals -- just not British ones.
“The U.K. finds itself marginalized because of the big unknowns tied to Brexit, at the very time they could have been big players in a European consolidation,” Roy said in an interview.
There have been U.K. deals, such as Standard Life Plc’s recent tie-up with Aberdeen Asset Management Plc and the merger earlier this year that created Janus Henderson Group Plc. What’s more, the pound’s decline of about 10 percent since the Brexit vote should make British money managers more attractive to potential foreign buyers.
But to Roy, consolidation’s key benefits -- cutting operating and regulatory costs and fending off competition from cheaper passive funds -- will be blunted if British firms aren’t able to operate under the same set of rules as the rest of Europe.
Talks to hammer out an EU exit deal are locked in standoff over the size of the U.K.’s divorce bill, and there’s still no clarity on whether any agreement would see the nation retain access to the bloc’s single market -- and the financial privileges that go with it. If Britain does crash out without securing single-market access, its money managers will lose the passporting rights that allow them to sell mutual, hedge and private-equity funds freely across member states under the so-called UCITS structure.
Almost 1.1 trillion euros of UCITS fund assets are domiciled in the U.K., according to PricewaterhouseCoopers LLP. Managers may have to relocate these funds to another EU state if Britain quits the bloc in March 2019 without a formal exit deal or, at least, a transitional agreement to bridge the gap.
One of the options often touted for the U.K.’s future relationship with the EU is the so-called Swiss model. Switzerland pays for preferential access to the bloc’s markets and accepts some of its regulations.
Roy has his doubts whether this model is suitable for Britain, saying that “everything is complicated” for asset managers in Switzerland.
Switzerland spent years negotiating bilateral agreements with EU member states to cement its relationship with the bloc. Given the date scheduled for Brexit, the U.K. is unlikely to have enough time to negotiate its own bilateral deal, according to law firm Reed Smith LLP.
“For an asset manager, doing business in Switzerland is a nightmare of rules and regulations,” said Roy. “Opening and closing a firm in Switzerland takes a lot of time. London will be confronted by the same issue.”