Alternative funds divided on impact of Brexit

A recent study found alternative asset managers have mixed views on the effect of Brexit on their business.

By Charles Gubert

There are divisions as to what the impact of Brexit will be on alternative asset managers, according to a survey conducted by Preqin.

The study found that 19% of private funds anticipated performance would be adversely impacted by Brexit, while 13% said the opposite. Nine per-cent of managers predicted that Brexit would have a positive impact on performance, while 13% reckoned it would have negative consequences. Hedge funds were the most bullish, with 31% and 23% stating Brexit would be good for performance in the short-term and long-term respectively.

Nearly one-third of alternative asset managers said they would invest less in the UK over the coming 12 months, while just three per-cent said they would increase their UK exposures. Alternative asset managers are equally split about whether Brexit will impact their long-term UK exposures, with 14% each saying they will increase and decrease their UK investments. Hedge funds – again – remained more bullish than the rest with 21% stating they would ramp up their UK exposures over the next 12 months.

Investors are certainly nervous about the Brexit implications. Thirty per-cent of private capital investors said Brexit would have a negative impact on performance, although 35% of hedge fund allocators said returns would improve due to the vote. Seventy per-cent of investors into alternative asset classes said they would maintain their EU investments in the short-term. Three quarters acknowledged they would retain their EU investments in the long-term.

The current uncertainty around Brexit has resulted in a number of hedge fund managers and traditional fund managers reassessing their geographical footprint in London. Many firms are concerned that UK-based firms could be deprived of the distribution benefits in the EU if Brexit negotiations turn sour, or take too long. Some managers have reported that service providers from Luxembourg and Dublin have been in over-drive trying to woo managers to restructure their businesses in those jurisdictions.

Equally, some service providers in London have called for calm heads pointing out the UK remains a member of the EU and will likely be so for several years. Restructuring out of Luxembourg or Dublin pending the outcome of negotiations could be expensive and pointless, particularly if the UK retains its membership of the Single Market enabling firms to continue with their existing passporting arrangements. However, it is advised that fund managers – at least – have a plan in motion to deal with any eventualities that may arise from EU-UK negotiations.