Brexit issues and impacts: US investment managers

The world turned upside down?

Post-Brexit uncertainty has hit the capital markets in such a magnitude that US investment managers have to address both short-term and long-term impacts. The perceptions of investors and their financial advisers must be priority one. After the first few weeks, as uncertainty and volatility in the capital markets transition, investment managers can shift focus to business planning and problem solving.

What’s next for US investment managers?

In this environment, relevant communication through distribution channels to all investors is critical. One communication approach that can reassure investors and financial advisers alike is process-oriented. In this approach, investment managers describe the steps that their professionals are taking to manage all the portfolios through uncertainty, volatility, or opportunity, in line with the long-term investment philosophy of the firm, especially those with European and UK exposure. Firms that manage these three factors with stability and professionalism through the market disruption phase of the Brexit are likely to be best positioned when the dust settles, as the initial turmoil transitions to the reality of managing regulatory and organizational change.

As the short-term volatility transitions to a long-term “new normal” for Brexit, investor and financial adviser communication can shift back to a pre-Brexit cadence. In this phase, the emotionally charged perceptions will have waned, and investment managers can shift focus to organizational problem solving. Firms will have to address investment strategy refinement, product registration implications, distribution structures, regulatory and compliance developments, and subsidiary jurisdiction, to name some of the major areas of effort. History has shown that UK business is adaptable and resourceful.

In the next phase, the uniqueness and complexity of each investment manager drives the amount of effort needed to optimally manage Brexit implementation. Simply put, the degree to which an investment manager operates globally, with varied and complex product structures, exponentially drives required effort to manage Brexit implementation. There is likely to be a strong difference along the product type dimension for Brexit impact. PE firms with European portfolio companies may present more complex business models to navigate through Brexit due to the nested nature of portfolio company operations, compared to hedge fund and mutual fund managers that steer clear of the operations of their portfolio holdings.

Continue reading about critical implications of Brexit on US CRE, or view the full series to understand the impacts on other key FSI sectors.

What are three likely implications for US investment managers?

There are several considerations for US investment management firms in the post-Brexit era. We briefly examine some of the more significant ones below.

1. Critical implication: Splintered distribution schedule
    Area of focus: Strategy and business model

What is the likely impact?

• Firms that distribute across the EU from a UK subsidiary face the largest potential impact as regulatory permissions shift from the EU umbrella to a new approach.

2. Critical implication: Data process and review 
    Area of focus: Strategy and business model

What is the likely impact?

• Enterprise processes (customer, trading, and regulatory) and data repositories for new cross-border regulatory compliance need to be reviewed.

3. Critical implication: Talent review covering territory and eligibility to work
Area of focus: Strategy and business model

What is the likely impact?

• Given redrawn political lines, firms may need to validate that the right talent is in place, with potential organizational change compounded by visa and immigration changes.

Download the PDF to discover all likely implications for investment management executives to consider.