Brexit Deal Seen Giving Clear Target For UK Asset Managers On EU Access

The new Brexit deal reached yesterday by the EU and the UK prime minister – who still needs to win a majority in parliament – holds positives for UK asset managers from the point of view of their access to investors in the EU27, according to a financial regulation specialist.

Owen Lysak, financial regulatory partner at law firm Clifford Chance in London, said: “The draft political declaration […] maintains the commitment of both parties to endeavour to conclude equivalence assessments by end of June 2020. 

“This will be well-received, as it gives a clear target for the UK government to try to hit and the asset management sector to push for in terms of the best access rights possible for UK managers,” he said.

It was good news that the transitional period set out in the previous agreement seemed to be unaffected by the new deal, he said.   

“We had seen some managers bringing forward their fund closings, some starting to move across mandates to EU affiliates, all because of concerns around a sudden loss of access to EU investors this year,” Lysak said.

Defined benefit (DB) pension schemes that had been hoping for a major funding boost as a result of UK interest rate rises, however, were likely to be disappointed, according to Rob Price, fixed income portfolio manager at AXA Investment Managers.

“The global macroeconomic environment that the Bank of England could find itself in should a deal be struck is very different to that of 2016, with most main central banks biased towards an easing tilt which should keep UK interest rates lower than historical norms,” he said.

“This could limit any potential major funding boost that could be experienced from interest rate reversion,” said Price.

Chris Cummings, chief executive of the Investment Association, said the Brexit deal provided welcome certainty to the investment management industry, “and the millions of savers and investors it serves.”

“Now a new deal is on the table, it’s important that politicians on all sides come together in order to avoid the damaging effects of a cliff edge no deal,” he said.

Looking ahead to potential implications for government bond yields, Mark Dowding, CIO at BlueBay Asset Management, forecast that if a deal is ratified in the next couple of weeks – or months – then sterling could rally to $1.35 and €0.81, with 10-year Gilt yields up at 0.9%.

On the likelihood of the agreement being ratified by UK MPs, Paul O’Connor, head of the UK multi-asset team at Janus Henderson said: “With the DUP reportedly uncomfortable with the deal, the parliamentary arithmetic for Saturday’s vote is very hard to call.”