M&G looks to Luxembourg after Brexit vote

M&G, the asset management arm of Prudential, the UK insurer, plans to build a new investment division in Luxembourg in a bid to hold on to its mainland European investors after Britain’s vote to leave the EU in June.

M&G, Britain’s fifth-largest fund company, with £255bn of assets, is seeking permission from the Luxembourg regulator to set up a new fund range in the country.

It is the first British asset manager to set out concrete operational plans in response to the Brexit vote, which has cast doubt over the ability of UK-headquartered fund companies to continue accessing mainland European investors with ease.

The concern is that if Britain moves towards a hard version of Brexit — which would mean losing access to the single market in favour of controlling the free movement of people — UK-based fund companies will need to strengthen their presence on the continent in order to continue selling products there.

Earlier this year, M&G outlined plans to establish a Dublin-based fund range, its first EU presence beyond the UK, in the wake of the Brexit vote. The Irish business currently sells funds to institutional investors across Europe, but does not have any staff based there.

M&G estimates mainland European investors account for 10 per cent of its assets. It has decided to build an additional presence in Luxembourg to cater to client preferences for funds registered in the grand duchy.

M&G is unlikely to move UK-based staff to Luxembourg, but it may add additional employees to the new business at a later date.

If approved, M&G’s Luxembourg business will offer European retail investors two Ucits funds that will invest with a global mandate. These funds are a popular investment product that can be sold across Europe, Latin America and Asia.

Jorge Morley-Smith, director at the Investment Association, the trade body that represents UK fund managers, said asset managers with UK-domiciled Ucits funds sold across Europe will face the biggest difficulties as a result of the Brexit vote.

He said: “Once Britain is outside of the EU, [UK-domiciled Ucits funds] will stop being Ucits. That is disruptive. The real question is how many are sold overseas. We think the population of that is relatively small; most are sold to UK clients so they won’t be impacted.”

Mr Morley-Smith added that it was unclear whether fund companies would need to add staff to service fund ranges in Luxembourg or Dublin, which are the largest hubs for investment products in Europe, once Britain leaves the EU.

He said: “Being outside of the EU does not necessarily mean you have to relocate staff within the EU. But these things are very fact specific. It depends on what the Luxembourg regulator allows Luxembourg funds to do.”