As the spectre of a “hard Brexit” is haunting markets, it is worth revisiting how this may – and may not – impact various parts of the hedge fund industry. Experts at Dechert, a law firm, have produced a guide called “Brexit Manoeuvres”, tentatively suggesting scenarios for UK AIFMs, UCITS Mancos and MiFID managers in the event of a hard Brexit. Considerable uncertainties remain, and the scenarios may vary by country.
Taking EEA AIFs as one example, the report says, “In principle, a UK AIFM should be able to continue to manage an EEA AIF to the same degree that, for example, a US investment adviser is currently permitted to manage an EEA AIF”. However, “As the AIFMD third country passport provisions have not been activated, the management of EEA AIFs by non-EEA AIFMs is outside the scope of the current AIFMD rules. Accordingly, whether such an arrangement is permitted will be determined on a jurisdiction by jurisdiction basis and the position is very unclear in some jurisdictions”.
The report goes on to say, “Currently Ireland permits such arrangements” [in respect of certain specific situations] but, “other jurisdictions may not permit it at all” and adds, “there will be certain categories for which this will not work, for example, if the AIF in question is a Luxembourg RAIF (which requires an EEA AIFM) or where it may cause difficulties in pursuing the strategy of the AIF (for example, an AIF engaged in direct lending in Germany must be managed by an EEA AIFM to take advantage of exemptions from broader banking regulations)”.
Thus, navigating the regulatory maze of financial services regulation post a hard-Brexit could become even more complicated and nuanced than it is today. The industry must hope for one or more of: transitional “grandfathering” arrangements, long-awaited harmonisation within the EU, and swift recognition of equivalence.
How is Brexit relevant to our cover feature, our sixth “50 Leading Women in Hedge Funds” report, published in association with EY? Brexit is partly a symptom of a desire to exercise more control over immigration. Stricter limits on immigration might deprive everyone, including women, of the opportunities to migrate and work abroad. Significant numbers of those featured in our report have immigrated, mainly to the UK and US, but the flows go both ways, with several women, such as SRZ’s Cathy Weist, EY’s Linda Henry, Glen Point’s Hopewell Wood and LFIS’ Giselle Comissiong, having moved from the US to the UK or France as well.
Immigration from the EU to the UK has crashed by about 80% since Brexit was announced, from around 200,000 a year to 86,000 a year. The danger is that even if skilled immigration remains feasible Brexit sends a negative signal to ambitious people who want to forge their career in London. The number of non-EU students studying in the UK has also slightly dropped since the Brexit vote. This is relevant because some women who featured in previous reports – such as Systematica founder, Leda Braga – came to study in the UK and then became academics before entering the hedge fund industry.