Gerald Rehn, International Head of Product at BNY Mellon Investment Management was a panellist at ALFI’s European Asset Management Conference on Brexit’s impact on organisations and their structures. We interviewed him on this topic. (Image: ALFI Funds)
In your view, what does the future hold for European Investment Management and Distribution after 29 March?
The UK’s vote to leave the European Union is often viewed as the primary catalyst for substantial changes to structure, location and substance of firms’ investment management and distribution activities in Europe. However, it is by far the only catalyst. Regulators have been steering the industry towards more enhanced oversight, with greater local presence and substance, since the Global Financial Crisis. In this light, Brexit can be seen as another influencer in this long-term direction of travel.
What are you and other managers doing to address these changes?
For us, it became clear over the last few years that building a more substantive local presence in Europe might allow us to better serve our fund and segregated account clients while at the same time ensuring that our regulated activities were transitioning in line with the guidance from regulators.
This gave us an opportunity and Brexit, particularly, provided some urgency to review our operating model.
Up to that point, we were effectively running three fund management companies separately in Ireland, the UK and Luxembourg. Our UK entity had been our primary distributor, engaging with continental sales representative offices and providing a number of key services to all our management companies.
But given Brexit and the substance requirements, we took a look at our presence in all three.
Luxembourg had many benefits for us. We already had a small presence in Luxembourg on the investment management side but a much larger one on the asset servicing side where we have over 250 employees. We looked at the benefits and found Luxembourg provided the ability to get closer to our clients – we felt we wanted a bigger presence on the continent. It also provided local law knowledge - adding more local legal expertise allows us to engage with our clients the way they prefer to engage, particularly on the institutional side. Finally, increasing local language skills and staff, not just client facing but throughout the organisation was a key benefit.
So, we made the decision to enhance our Luxembourg Management Company to act as primary management and distribution oversight for our European funds including our Irish UCITS and AIFs, and act as Designated Portfolio Management for our client businesses on the continent. Effectively our European branch offices report into Luxembourg, where previously they were into London.
Our UK entity will continue to oversee all UK and non-EU business and have key-shared services covering the continent such as Product Development, Marketing and executive management.
Overall, with these changes we have addressed the current regulatory needs and created a solution which better serves our clients.
What do you think the future holds for the industry?
Ultimately, I believe the overall outcome in terms of local servicing and support for investors will be better. The industry will likely be more fragmented, yet more robust from an operating risk and governance perspective. Greater local presences will reduce the risk of contagion within the system, but may result in higher costs and lower operating margins for asset managers over the longer-term.
Gerald Rehn is International Head of Product and is responsible for BNY Mellon’s European investment products and governance. BNY Mellon is a global Investment Management and Asset Servicing firm with a significant presence across Europe and the UK. In Investment Management, it operates a multi-boutique investment model with a combined $1.7 trillion in assets under management.