Context

There is increased, but still far from complete clarity on how Brexit will affect how funds are distributed and produced cross-border. Panels at the ALFI Rentrée virtual conference sketched these outlines, as well as other fund distribution trends.
What access UK fund managers will have to EU investors after the Brexit transition period ends next year remains an open question. Whether EU-based management companies will be able to delegate tasks to UK asset managers, or if UK regulated funds will be deemed to be equivalent to those in the EU also remains unclear.

On-going Brexit battle for asset managers

The panel noted that questions regarding non-EU based asset managers have been on-going for many years, and there has been renewed emphasis since Brexit. “Yet the more barriers there are for asset managers, this would mean investors have less choice, and this factor needs to be considered in Paris and Brussels,” said Michael Collins of Prudential.

“There is the persistent idea that physical and geographic presence matters when it comes to regulatory oversight, but the experience of the pandemic has shown this does not really matter,” said Sheila Nicoll of Schroders Investment Management. While taking this point, Mr Collins sees an ulterior motive of calling into question equivalence and delegation of funds services from non-EU countries: “there is a part of this debate about the acquisition of high value activities.”

There is more, if not perfect clarity in the other direction. “The UK market will remain open to EU-based UCITS and AIFs until probably 2023-2024 at least,” noted Martin Parkes, Managing Director Global Public Policy at BlackRock. EU UCITS would be treated as AIFs in the UK, and “there will be amendments to UK regulations to allow for a recognition regime based on an equivalence of outcomes,” he added. “This should not be an arduous process but it too early to say for sure,” he added, saying that arrangements could take years to finalise. 

Changes from Covid

Discussions also turned to changes brought about by the virus. “The impact of Covid-19 has been greatest on small and mid-sized asset managers who rely more on face-to-face meetings,” said Sean O'Driscoll of Universal-Investment-Luxembourg. “Larger firms have greater market connectivity. They are developing new channels like webinars and virtual workshops,” he added. “Technology will determine who will survive and who will not,” noted Alain Mandy of WMF Global. “It is critical to being close to the client, although there is also a trend toward proximity, with big groups opening local offices,” he said.

New trends for AIFMD and UCITS

There was a look at the situation for alternative investment funds, including the question of how retail investors could be given access to these products. Peter Veldman of Luxembourg EQT mentioned the idea of “tokenisation”, whereby a token that digitally represents a tradable asset can be purchased.

“This would grant smaller investors access without disturbing the liquidity of private asset funds,” he said. Paul Bashir of Harrison Street Europe said: “every real estate asset class was under pressure during the crisis, and investors have been cautious. However we are seeing the re-emergence of activity, particularly in areas such as residential for rent, health care, life sciences, student accommodation.”

Regarding one of the key suggestions in the letter by ESMA to the European Commission on 19th August, “harmonisation between AIFMD and the UCITS will help to bring costs down by industrialising the processes,” said François-Kim Hugé with Deloitte Luxembourg. There was also mention for the recently created standardised due diligence questionnaire developed through the ICI by leading asset managers and distributors. EFAMA and ALFI have been behind this too. “This should be a major efficiency boost,” noted Alain Mandy of WMF Global.