The Financial Times has reported on concerns within the asset management industry (and at government and regulator level) about changes to delegation models used by many asset managers following Brexit. At present, many asset managers in the UK and elsewhere operate structures under which a Dublin or Luxembourg based fund operator (typically an AIFM under the Alternative Investment Fund Managers Directive or a UCITS fund manager) delegates asset management to a UK investment manager. Many in the industry had hoped that these arrangements would continue to operate effectively following Brexit as formal responsibility for operating a European Alternative Investment Fund or a UCITS fund would remain within an EU Member State (Ireland or Luxembourg).
However, recent regulatory pronouncements and, in particular, a series of opinions published by the European Securities and Markets Authority, have led industry commentators to fear possible changes to the level of substance required in Ireland or Luxembourg which could prejudice the effectiveness of these models. Such changes could also adversely impact asset managers based in financial centres outside the UK, including New York, who already use delegated models as one method of accessing a European investor base. As Chris Cummings of the Investment Association notes in the FT article, these changes could have reverberations for the (ex-UK) EU both in terms of the possible loss of access to UK expertise and also other non-EU financial centres. It is also conceivably possible that taking such steps could risk retaliatory action by the financial centres impacted, perhaps even (ultimately) limiting EU managers' ability to access investors in those markets.
Chris Cummings, chief executive of the Investment Association, the UK trade body, says “unpicking of delegation rules” will have reverberations. “The EU could cut itself off from UK portfolio management expertise but also from other international financial centres, from the US to Japan,” he says.