Calls grow for ‘new generation’ UK funds regime to boost industry post Brexit and encourage regional economic growth

Bank of England

Boutique asset management think tank New City Initiative (NCI) is calling for the development of a new UK fund structure that could rival UCITS and AIFs, while decentralising fund management in the country and encouraging regional growth. 

In a new white paper, NCI outlines how the sector’s economic recovery could be strengthened by developing a new UK funds regime. It argues this could lead to the re-onshoring of UK assets currently held in tax havens, an upsurge in new roles in the UK funds industry and the development of regional hubs outside of London.

“NCI believes that the roll-out of an effective domestic UK fund structure could materially strengthen the financial services industry, particularly outside of London. By encouraging the asset management industry to widen its geographical footprint within the UK, it could result in a more even distribution of wealth across the country, supporting the Northern Powerhouse and the Midlands Engine, and enabling local economies to flourish,” says Nick Mottram, chairman of NCI and chairman of fund manager Dalton Strategic Partners. 

NCI believes a bespoke UK fund structure could facilitate the onshoring of more asset servicing roles that have traditionally been based in Ireland and Luxembourg, many of which do not necessarily need to be carried out in London. 

Leading banks such as Citi, Deutsche Bank, and JP Morgan – and a number of other large fund administrators – already have substantial offices in regional UK cities including Birmingham, Bournemouth, Belfast, Glasgow, and Liverpool, and Goldman Sachs is reportedly looking to buy 60,000 sq ft of office space outside of London.

According to The City UK, two thirds of the country’s 2.3 million jobs in financial and related professional services are currently located outside of London. “Some of the biggest names in global finance already have a sizeable UK regional presence but we believe there is still a huge amount of room for growth,” says Mottram. 

Chris Sier, the Fintech envoy at the Northern Powerhouse, says: “A number of financial services firms are also encouraging people living in London who are from regional cities to move back to their home towns and work in subsidiary offices. The quality of life and buying power in regional cities is much greater than in London, and that is also proving to be a major pull.”

While the Covid-19 pandemic has put more pressure on financial institutions to cut costs, it has also changed working cultures. “It is possible that the ’new’ working practices emerging from the Covid-19 crisis will help break down geographical boundaries, which may provide a helpful boost to the regional economy. If video conferencing, virtual meetings and digital events become more prominent, this could encourage more London-based organisations to consider remote working and/or a regional office presence as they seek to identify potential sources of efficiency and effectiveness in their operating models,” says Julian Wells, director at Whitecap Consulting in Leeds.

The idea of developing a bespoke UK fund structure to compete with popular EU fund wrappers such as UCITS and AIFs has seen renewed interest as a catalyst for the country’s financial sector as it reinvents itself after the coronavirus pandemic and Brexit.

In order to gain traction, NCI proposes that UK retail and institutional investors currently invested in UCITS funds be given the opportunity to convert their holdings into the new UK fund structure. 

In its white paper, the think tank notes that the new structure would need to incorporate the investor protections presently enshrined under the UCITS and AIFMD regimes, and cites a number of potential improvements to create a fund structure that would provide both retail and institutional investors with more choice and encourage competition.  

NCI points out that most investors with exposures to UK asset managers in Irish-domiciled funds are based outside of the country. If the UK followed the lead of countries like Ireland and Luxembourg, exempting foreign investors from paying UK tax on investments, this could bring assets as well as jobs back to the UK.

Mottram adds: “As we face both fresh and familiar challenges, from the Covid-19 economic shock to Brexit, we believe the time for this new generation fund structure is now, and we’re ready to engage with government and industry to realise this vision.”