Fund Assets To Shift From UK After Brexit

Shanny Basar

Columbia Threadneedle Investments plans to transfer EU customer assets from UK funds and Luxembourg and Ireland are likely to continue to gain market share as the UK leaves the European Union.

Last week Columbia Threadneedle said it plans to transfer EU customer assets from 20 UK funds to equivalent funds in Luxembourg, which the asset manager said would best serve European clients after the UK departs from the EU.

Michelle Scrimgeour, chief executive, EMEA at Columbia Threadneedle, said in a statement: “By facilitating the transfer of European customers to our existing Luxembourg range we will ensure they can continue to access our best investment strategies in a UCITS-compliant fund, regardless of the final agreement between the UK and the EU. For EU investors, the transfers will remove uncertainty regarding the future status of their investment in their home country.”

Detlef Glow, head of EMEA research at Thomson Reuters Lipper, said in his latest Monday Morning Memo this week that there were 34 fund domiciles in Europe, accounting for €10.54 ($12.4) trillion in assets, according to the research provider’s  European fund market report for the first quarter of this year.

Glow said in his memo that Luxembourg and Ireland were the largest fund domiciles with 33.6% and 16.6% market share respectively, since the vast majority of funds sold in more than one country are domiciled in these two countries. He continued that Brexit is one factor that has the potential to significantly drive up their market shares.

“One of these trends is the so-called Brexit, since the fund industry has be prepared for a no-deal environment where British asset managers relocate funds sold mainly to continental European investors to European Union onshore domiciles, i.e., to Luxembourg or Ireland,” he said.

In addition, Glow continued that foreign asset managers who want to launch a UCITS fund also prefer the international fund hubs, since these domiciles and the respective service providers are well known by local investors. However local fund domiciles will also continue to growth.

“Even though the European fund regulation opens up the EU as a single market, a number of institutional investors still prefer local funds because of local market guidelines and/or investor-specific regulations,” added Glow.

For European exchange-traded funds, Luxembourg and Ireland account for 78.95% of assets under management, and the five top domiciles account for 99.10%.

Detlef Glow, Lipper

“This kind of consolidation in the ETF segment is to be expected, since ETFs are true cross-border products, and promoters therefore prefer the international fund hubs,” said Glow.

However, Glow continued that locally domiciled funds are important in the ETF market as institutional investors in Germany, France and Switzerland have regulatory requirements for local products. He gave the example of BlackRock’s iShares business changing its decision over closing its German office due to protests from clients.

Glow said there could also be a growing demand for local funds in the UK.

“Since Brexit may shake up the cross-border fund regulation in Europe, there may be an increasing demand for locally domiciled ETFs in the UK, which will drive up their assets under management and therefore the importance of the UK as a European ETF domicile,” he added.

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