Our last three posts focussed on the challenges facing UK managers currently relying on EU passporting to distribute funds throughout the EU 27. This time we look at the other side of the Brexit coin – the challenge of distributing an EU fund to UK investors.
Brexit is not a one-way street
The size of the UK investor pool for EU regulated funds cannot be underestimated. Take Irish UCITS as an example: 55% of all Irish funds at the end of 2015 were registered in the UK*. The UK has consistently been the primary market for the sale of Irish domiciled UCITS and is usually the first market that an international asset manager establishing funds in Ireland target once established.
The very real prospect that a manager could lose the ability to tap into this market come March 2019 makes it important that alternative ways of maintaining this inbound access for EU funds into the UK be devised.
The temporary permissions regime may provide temporary solace. It will provide a backstop by allowing inbound managers to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation. It will also allow funds currently with a passport to continue temporarily marketing in the UK.
Another option that some managers will undoubtedly consider is to establish a parallel investment vehicle in the UK. Should this take the form of an open-ended investment company (“OEIC”), an authorised corporate director (“ACD”) would need to be appointed to run the day-to-day operations of the OEIC and where the ACD is the sole director, it will also act as the manager. In practice, almost all OEICs have just one director, which is the ACD.
Carne has a UK ACD licence and can provide management company services to such parallel vehicles, be they AIFs or UCITS. In addition, we can support the establishment of parallel vehicles through the provision of compliance, operational support and oversight services, to name just a few.
That concludes our series on the challenges and questions facing UK managers around distribution and those facing managers seeking to distribute into the UK. Next we will resume our commentary on the course of the Brexit negotiations and the effects on industry.
*PwC Report: 'Benchmark Your Global Fund Distribution 2016