Logistical changes and economic uncertainty triggered by Brexit concerns could lead to a further drying up of fund launches and a rise in the number of sub-scale portfolios.
The UK voted to leave the EU on June 23, and, although the nature of the country’s new settlement with the bloc is no closer to being finalised at this stage, some fund groups appear to have accepted the need for a double-pronged sales strategy.
Fund passporting currently allows asset managers to sell products across Europe. But this is unlikely to be permitted in the event the UK leaves the single market.
That has led firms to begin replicating their UK-domiciled funds in offshore structures.
The head of distribution at one global asset management firm, who wished to remain anonymous, also confirmed fund launches may now be put on hold.
“If you were to launch a new fund in the past, you would only have one [Oeic or Sicav].
“But if you have to raise two lots of capital for two funds it brings into doubt whether you can launch it in the first place.
“Now, when we are thinking about new fund launches, we have to seriously consider our options.”
While fund buyers already saturated with products may welcome a more complicated environment for new launches, Rory Maguire, head of ratings agency Fundhouse, said the changes may also have more significant consequences.
Asset managers may be forced to transfer European investors’ assets from Oeics to new offshore structures, potentially leaving sub-scale funds behind, according to Mr Maguire.
He also agreed the “instant disappearance” of risk appetite among investors would further inhibit launches.
The UK has already seen a sharp drop in the number of new launches in this year. According to Thomson Reuters Lipper, there had been 141 onshore and offshore fund launches targeted at the UK market as of the end of the second quarter, compared with 229 in 2015.
However John Clougherty, head of UK retail at Fidelity International, allayed thoughts of a further drop. “We are determined to follow the course we have plotted,” the distribution head said.
Dividing assets between Oeics and Sicavs may also affect the strategies of Europe-based fund houses looking to launch products in the UK.
Currently, they typically do so by marketing sizeable European-domiciled funds to UK investors.
European asset managers contacted by Investment Adviser said they had not yet planned their future changes to their business models.
However, a UK-based sales head, who did not wish to be named, said their company would now review its European-wide ambitions after the vote due to cross-border concerns.
