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London’s fund industry will be hit by job losses after the UK voted to leave the EU. The move sent shockwaves through the asset management sector and triggered turmoil in global financial markets.
Britain voted by 51.9 per cent to sever the UK’s relationship with the EU on Thursday, prompting fears that asset managers will cut staff and relocate others out of London to maintain access to European investors.
At least one fund manager rushed to draw up legal notices to stop redemptions from their investment products on Friday, as the impact of the referendum became apparent.
It is understood that the Financial Conduct Authority, the UK watchdog, contacted asset managers last week to check how well equipped they were to deal with redemptions in the wake of an exit.
Amin Rajan, chief executive of Create Research, the consultancy, said job cuts were now on the cards for the fund industry, which had been banking on a Remain vote.
Several fund managers are putting plans in place to move jobs from the City of London, the UK’s financial centre, to countries such as Ireland and Luxembourg, which are big centres for the asset management industry. They fear a British exit — or Brexit — would leave UK-based asset managers struggling to access European investors.
One of the UK’s best-known fund houses will move some jobs to Luxembourg, according to an employee who was familiar with its plans and spoke on the condition anonymity.
“We won’t be moving our headquarters, but we do need to think about our resourcing in Luxembourg,” the employee said.
Mr Rajan said: “Over the next five years, the centre of gravity will shift to Dublin and Luxembourg for retail funds; and Frankfurt and Paris for institutional funds. London’s pre-eminence can no longer be taken for granted.”
Earlier this year, the Central Bank of Ireland, the financial watchdog, said it was preparing for an influx of investment managers from the UK to Ireland if Brexit were to happen.
Pat Lardner, chief executive of Irish Funds, a trade body, said: “There is a uniqueness about our relationship with the UK fund industry. And Ireland has a deep relationship with the UK. So that puts us in a strong position to help.”
Camille Thommes, director-general of Alfi, the Luxembourg fund association, added: “For industry players this starts a period of uncertainty, and some might look for alternative jurisdictions, such as Luxembourg or Ireland.”
The UK’s exit from the EU comes at a tough time for asset managers, which are already dealing with falling profit margins and concerns about performance. This month, McKinsey, the consultancy, forecast that profits at asset managers would fall by a third over the next two years.
Daniel Godfrey, former head of the IA, the trade body representing UK fund managers, who is currently working with the UK regulator, said the Out vote would pile further pressure on asset managers.
“There is an immediate downside for asset managers. Plunging valuations means plunging assets, and that will dent revenues. The potential slowdown in UK gross domestic product would also result in prolonged pain for the market,” he said.
“All industries will see job cuts in that scenario and asset management will be no different.”
Investment companies have tried to reassure investors about the impact of a Brexit, amid fears they will pull huge sums of money from investment products. Assets in the UK fund industry have already fallen by a fifth over the past 12 months.
Chelsea Financial Services, the UK fund supermarket, said on Friday there had been a 10 per cent rise in investors looking to switch funds or move from funds to cash, or vice versa.
The UK and the EU now face what is likely to be a lengthy negotiation to unwind Britain’s 43-year membership of the trading bloc.
Saker Nusseibeh, chief executive of Hermes Investment Management, the UK fund house, said the outlook for markets and the fund industry relies partly on the outcome of the negotiations between the UK and the EU.
The City is expected to fight hard to maintain strong trading links with the EU. However, Britain is already receiving pushback from EU states saying there will be no renegotiation of the UK’s membership.
Mr Nusseibeh said: “There is an expectation we will see a sharp and short reaction [to the Brexit vote]. My concern is this could be prolonged: that this is a steady decline rather than a short and sharp decline.
“But asset management as a business is something that the UK is very good at. I am sure it will survive, but for some it will be tough.”