UK asset and fund managers currently benefit from the EU Passport granting access for their Fund products to the EU market. There is - depending on the final post-Brexit model - a high probability that UK based Fund Managers will lose the EU passport for their Alternative Investment Funds and might think about reallocating their registered office to any other of the remaining 27 countries of the EU. For the Luxembourg Fund Industry, Brexit could bring many opportunities.
There are clear advantages for UK Fund Managers to re-allocate their business to Luxembourg and not to Dublin, Paris or Frankfurt. Luxembourg, being the largest investment fund center in Europe, appears to be the ideal place to re-allocate the business, as it already offers the necessary international human resources and infrastructure combined with a business-friendly environment.
Most of the UK based Asset and Fund Managers already have subsidiaries or branches located in Luxembourg. In the view of Christine Jacquemart, Commercial Director in Fund Services at Intertrust Luxembourg, it would be the logical consequence that Luxembourg becomes the main entry point for UK based Fund Managers accessing the European Single Market.
The reallocation of UK Fund Managers to Luxembourg would consequently increase the number of employees in Luxembourg.
The new relocation guidance from ESMA, Europe's top financial markets regulator, which plans to stop shell companies in Europe routing business back to the UK would imply substance to be deployed in Luxembourg. Senior staff together with effective decision makers should be based within the EU. This could mean compliance, audit and legal staff, as well as Chief Executives and Boards, to be located in the EU. Outsourcing the investment management functions to the UK would only be possible where the entity is in compliance with the UCITS and AIFM Directives. Outsourcing of portfolio management would require a MiFID II compliant entity.
Considering the majority of UK based AIFM Mancos do not have a presence in the EU, Luxembourg is ideally positioned to support UK managers wishing to continue distributing their products to European Institutional Investors.
Nevertheless it needs to be mentioned, that the positive impact on the Brexit is highly depending on the post Brexit model that will finally be applied.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
