Finance

$14 Billion Says Brexit Threat Is Real

Threadneedle's move isn't simply technical. It's about Brexit.

London’s long sunset.

Photographer: Chris Ratcliffe

On the face of it, Columbia Threadneedle's decision to transfer 10 billion pounds ($14 billion) of assets from its U.K. fund range to equivalents in Luxembourg looks nothing more than a technical reshuffling. Viewed through the lens of Brexit, though, it highlights that — in the worst-case scenario — a chunk of the British asset management industry could melt away almost overnight.

Europe is the U.K.'s Biggest Customer

Some 37 percent of the assets managed in the U.K. are for non-domestic customers, with half coming from Europe

Source: The Investment Association

According to the Investment Association, a trade group, U.K. fund companies manage about 8 trillion pounds of assets — second only to the U.S. About 2.6 trillion pounds of that is for overseas customers, with clients from the European Union contributing about half of that non-domestic total.

Once the U.K. leaves the EU, British financial firms are resigned to losing their so-called passporting rights that allow them to sell their services into the trading bloc. The rules governing funds currently sold to EU retail investors by U.K.-based firms will change, hence this week's move by Columbia Threadneedle.

The London-based asset management unit of U.S. financial services firm Ameriprise Financial Inc. says it's transferring assets to Luxembourg-listed funds so that it can continue to service EU customers regardless of what the final agreement between the U.K. and the EU looks like. The shift affects 20 funds, or less than three percent of Threadneedle’s 395 billion euros ($469 billion) of assets under management. The money will continue to be managed by the firm's London portfolio managers. But that could change.

It's still not at all clear how the post-Brexit regulatory landscape will affect how the EU views the so-called delegation arrangements that allow money to be managed outside of the country in which funds are sold.

The European Securities and Markets Association, which oversees the fund industry in the EU, published guidance last year that suggested it could compel firms to have managers who are running the business in the same country as the fund is incorporated. If a fund manager "is not genuinely operating from the home member state jurisdiction," ESMA says that may be grounds for national regulators to withdraw delegation rights. This is a clear threat to London’s fund management industry.

Threadneedle declined to comment beyond its press release, in which it says the decision "will remove uncertainty regarding the future status of their investment" for EU customers. But it's clear that Brexit is starting to get real for the U.K. fund management industry.

The 1.3 trillion pounds managed in the U.K. on behalf of EU customers is safe for now. But the threat to London’s preeminent position is only growing.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Mark Gilbert at magilbert@bloomberg.net

    To contact the editor responsible for this story:
    Edward Evans at eevans3@bloomberg.net

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