Buy-side looks to keep location of trading desks in spite of Brexit

Study by Liquidnet found that 87% are not looking to relocate trading desks ahead of the UK’s departure from the EU, but this could be temporary.

The majority of asset managers and hedge funds are looking to keep trading desks where they are despite many institutions establishing bases in Europe outside of the UK ahead of Brexit.

A recent study by Liquidnet found that 87% of buy-side firms are not planning to relocate trading desks from their current locations, although this could be temporary as half of respondents expect this may change depending on the outcome of Brexit negotiations.

A third of those are also looking closely at potential fragmentation of liquidity in terms of relocation, but just 17% are ready to move today should the need arise.

The study from Liquidnet saw 29 investment management firms with a combined $15.6 trillion in assets under management globally quizzed about their preparations for the UK’s departure from the European Union.

A majority of 83% have a plan in place in response to Brexit, but just 49% have actually put their plans into action, while 17% remain uncertain about what to do and are waiting to act once the outcome of Brexit becomes clearer.

“The asset management industry needs to keep its eye on the prize,” the report, authored by Liquidnet’s head of market structure and strategy, Rebecca Healey, said. “Aging demographics, declining returns, fund outflows and the increasing cost pressures of passive investments continue to weigh on performance.”

“Capital markets no longer deliver double-digit returns and as profit margins shrink, asset managers in the UK as well as those in the European Economic Area (EEA) will have to decide where to locate and what business they want to engage in. Those who service them will need to follow suit.”

In July, the European Securities and Markets Authority (ESMA) publicly warned UK firms to prepare for a possible ‘no-deal’ or ‘hard Brexit’ scenario, reminding them of deadlines and procedures for setting up EU bases outside of the UK.

Major asset management firms including T. Rowe Price, Columbia Threadneedle, Fidelity International and M&G Investments have already confirmed plans to move funds from the UK to other European cities, such as Luxembourg and Dublin.