July 31, 2020
Has the UK fund management sector lulled itself into a false sense of security and needs an urgent wake-up call. Why? Because we are racing headfirst toward a hard Brexit that’s now less than six months away. That raises existential questions that the industry is largely failing to address.
First, let’s take a step back. In recent years, a general tide of much-needed transparency has risen in UK fund management. In 2013, the Alternative Investment Fund Managers Directive set out hundreds of pages of regulations for an “EU-wide harmonised framework”, effectively standardising practices and enhancing protections for investors across the region. It introduced passporting so alternative investment fund managers could easily draw investors in from other EU member states. Before June 2016, the continuing existence of that standard framework – and the resulting inflow of capital – was taken for granted.
The Brexit referendum was more than four years ago, but the industry still takes AIFMD’s existence for granted when it cannot afford to do so. Talk of equivalency or an expectation that these rules will continue shroud the fact that our split from the EU is fast approaching. Every passing day without a trade deal with the EU is a day closer to AIFs finding themselves in the middle of a hard Brexit that will make the framework they operate in obsolete. It’s time to do something about it.
At this point, savvier investors will be thinking: “What happens to me if these fund structures no longer exist?” Fund managers need to consider the reality of the situation and consider structures that exist in the UK that will allow them to continue to advise their investor clients.
For real estate investors, IPSX has a solution. We have an FCA-regulated listed market that allows investors to tap into either the wider investor universe including retail ,on IPSX Prime, or professional investors on IPSX Wholesale. It offers an existing alternative to sector-specific funds in a fully regulated on shore structure.
We aren’t under the illusion that IPSX is a universal panacea. After all, balanced funds with mixed portfolios cannot be listed on the exchange. But it does offer a new option for investing in real estate. The purity of a single asset class or a single asset on a transparent, regulated platform is expected to lead to pricing much closer to net asset value than in mixed portfolios – unlike the many diversified REITs that are now trading at significant discounts.
That point might not sound entirely relevant in a discussion about the future fund managers face, but it is. As fund managers grapple with a post-Brexit landscape where their structural frameworks are no longer guaranteed, there is an opportunity to consider alternative solutions for their clients. That has to include considering structures that we know exist – and will continue to exist – but it could also include thinking about the consolidation of real estate assets to take better advantage of solutions like IPSX, ultimately delivering better, more transparent investment opportunities for investors.
Hoping for the best isn’t good enough. It’s time to make decisions and face the reality of a hard Brexit.
IPSX Wholesale is a market exclusively for institutional and professional investors.