Throughout 2020, wealth managers have had to manoeuvre through unprecedented levels of market volatility across multiple economic jurisdictions.
Ever since Covid-19 was branded a worldwide pandemic by the World Health Organisation in March, declining productivity, depressed employment figures, and a weakening of GDP have resulted in substantial losses in both emerging and established markets worldwide.
In response, wealth managers have been prioritising economic jurisdictions that can offer two things: stability, and access to a diverse range of new asset classes.
We have been monitoring different markets closely with these key considerations in mind. In this Covid era, ‘stability’ is heavily linked to the effectiveness of a state’s epidemiological policies, as shown by its direct correlation with overall investor confidence.
This presents some interesting questions for the UK and its prestige as a popular destination for international wealth management.
Key points
- Wealth managers have been prioritising stability and new asset classes
- Everything is being judged, in the UK, on how quickly we can recover from the virus
- The UK, at time of writing, still has to conclude a trade deal
With its strong reputation of political stability, transparent judicial framework, and bountiful investment opportunities, wealth managers have traditionally placed UK-based asset classes in high regard during periods of global turbulence.
For now, it seems that this remains the case.
Looking at private equity investment as an example, KPMG reported a 53 per cent uptick in venture capital investment into UK scale-ups during the first quarter of 2020; equivalent to more than £2.6bn. Similarly, property boasted a considerable intake of investment, with estate agency Knight Frank reporting that London has received more than £3.2bn of commercial real estate investment in 2020 thus far.
Covid and Brexit
While these figures are certainly indicative of investor optimism towards the UK as a stable investment hub, there are still two important factors to keep in mind.
First, the UK government’s efforts to curtail the spread of Covid-19 have recently faced a number of setbacks. Successive policy U-turns and the return of strict, long-term lockdown measures could have a significant impact on the country’s economy as it tries to instigate the UK’s post-pandemic recovery.
This fear was compounded on September 22, with Prime Minister Boris Johnson announcing numerous new restrictions to lessen the chances of a second virus outbreak.
However, all public health measures must be weighed against the UK’s ability to recover quickly from the destructive nature of Covid-19.
Ensuring the economy is in a position for a quick recovery is at the heart of the government’s strategy. Multiple policies have been introduced to encourage investment activity and spur consumer spending.
Thus far, it seems these efforts have been successful, with the UK’s economy growing by 6.6 per cent in July 2020. The question now is whether this momentum can be sustained, especially as lockdown has toughened in all four countries of the UK.
The second issue to grapple with is regards the upcoming finalisation of Brexit. With Covid-19 dominating the news cycle, it is easy to forget that the UK is officially scheduled to exit the EU’s European Economic Area at the end of the year, having already left the bloc’s legislative framework in January 2020.
At the moment, we see the country simultaneously grappling with the economic and public health repercussions of Covid-19, while negotiating future terms with Britain’s largest trading partner, the EU.
Interestingly, as we enter the final quarter of the year, these negotiations have heated up with Westminster and Brussels trading blows in recent weeks. Suddenly, a no-deal Brexit is once again a possibility.
Amid all this, more trade talks are being pursued with other major trading nations in an attempt to replicate the free trade access the UK currently enjoys as a member of the EEA.
Although there has been some recent progress in this area, with a UK/Japan free trade deal agreed upon on September 11, much more needs to be done to ensure British companies can access low-tariff trade after 2020.
Failure to do so, and the subsequent introduction of stringent tariffs on British exports worldwide, will likely dampen the UK’s future economic prospects.
Thus far, it seems these efforts have been successful, with the UK’s economy growing by 15.3 per cent in Q3 2020. The question now is whether this momentum can be sustained.
It is positive to hear that a vaccine could be on the horizon. However, the global rollout of an approved vaccine will be no easy feat. It also does not change the fact that the UK will still need to overcome the initial economic disruption caused by the latest lockdown.
The final quarter
To ensure the UK’s future credibility as a premier wealth management destination, the government must make progress on post-Brexit trade negotiations and Covid-19 containment.
By this, I do not mean effectively resolving these issues, but rather putting the appropriate policies in place that promote economic stability, confidence and certainty.
Of course, there are many unknowns still to contend with. However, based on what I am seeing at the moment, there is good reason to believe that both issues will be partially resolved in the coming months.
Doing so will secure the UK’s reputation as the top jurisdiction for wealth managers. I look to the coming months with keen interest.
Nir Sadeh is senior vice-president and head of private banking at The Bank of NT Butterfield & Son Limited
