The Week: Brexit, no Brexit

Whatever side you’re on, Brexit means higher costs for asset managers, which means more consolidation

  • Asset managers have already been forced to prepare for a no-deal Brexit
  • These preparations have added costs at a time when margins were already creaking
  • Asset managers are likely to see greater consolidation as pressure mount

Day 993 in the big brother Brexit house. We are, of course, no closer to Brexit. We have the perverse situation where remainers are voting for Brexit in the form of the Prime Minister’s deal, and Brexiteers are voting against it, in the hope that they will secure a more ‘authentic’ Brexit. Parliament appears to have taken control, but until the relevant laws are passed, nothing is in set in stone and we leave in 15 days. Gulp.

There is a sense in which the final outcome now doesn’t matter all that much to asset managers. No responsible business can leave it to the last minute to plan for the various outcomes. As such, they have already been forced to prepare for a no-deal Brexit. Most have now put structures in place to ensure that they do not run into distribution problems ahead of the deadline. Many have beefed up their Luxembourg and Dublin offices to ensure that they are in a position to take care of their European clients.

The difficulty is that this adds costs at a time when the asset management industry is already under pressure on fees. Equally, investors may become increasingly reluctant to pay fees at a time when markets are volatile and returns low.

Invesco’s chief executive warned this week that up to a third of the asset management industry could disappear over the next five years, as a result of this mounting fee pressure and rising costs. There have already been three mega-mergers in recent years - Janus Capital merging with Henderson Global Investors, Aberdeen Asset Management with Standard Life, and Invesco with OppenheimerFunds – while the number of deals in the industry spiked to 253 last year.

These deals should bring scale and improved outcomes for investors, but investors have not always reacted favourably. Inevitably, these deals involve some changes in personnel and that can be disruptive. It is relatively easy and cheap to switch from fund to fund today and many investors decide they would rather not take the risk.

However, it is difficult to find a fund management group that would be immune from this type of activity. Recent merger activity has encompassed big and small. Investors will have to be increasingly alert in this environment, ensuring that the reasons they bought a fund still apply.

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