Speculation is rampant that asset management firms in the UK may start moving jobs out of London to other EU states like Luxembourg and Ireland as the repercussions of the Brexit vote become more evident. However, the implications for jobs on the buy-side are not just an EU issue, it could also affect asset management firms in the U.S. Here's how.
As of today, nothing’s changed legally in the UK’s employment laws or the preferential access to investors that its financial services companies enjoy on the continent. But it is a near certainty that friction in the labor markets will increase and that many UK financial services companies will need to incur additional expenses to maintain their access to the continent.
So we should put decisions about possible job relocations into two categories – first, jobs that could be performed anywhere, but happen to be done in London. In that case, the current uncertainty might be enough to tip the balance to move those jobs elsewhere. These could include portfolio-side jobs for non-European asset classes and funds or star managers who can choose to live anywhere.
But it could also affect back- and middle-office jobs that are still done from the UK. The bottom line is that, if a firm doesn’t have a strong preference about where the jobs are performed, just the hint of uncertainty might be a good enough reason to move them.
The second category of job relocations will depend to a much greater extent on the negotiations between the UK and the EU. There are no practical barriers to the UK continuing to have access to the EU—the financial services laws are, as of today, comparable to EU law because they haven’t been changed yet. So where European regulators are willing to grant outside countries access to the EU, the UK should be in an excellent position to obtain such access.
But if they fail, or UK firms fail to plan properly to take advantage of any new conditions for continued access, then these jobs would be in danger of moving.
It won’t happen overnight, but for firms that are already weighing whether to put people in London or New York, Brexit uncertainty clearly tips the scales towards New York. Firms are somewhat less willing to invest more resources in a country with an uncertain business climate.
But it’s also fair to say that the U.S. is, in international eyes, suffering from an uncertain political environment.
London retains other advantages—and not just the obvious cultural and language benefits. However flexible and global a firm is, there is no way to get around time zones. London not only overlaps with Europe’s business day, but also part of the Middle East and Asia's business hours. Any veteran of a Hong Kong or Singapore office can tell you how tired they get of taking midnight calls from New York.
So perhaps, instead of a dramatic shift in employment prospects in London, perhaps we’ll see a slow drain until the uncertainty is resolved one way or another.
Still, the uncertainty will hurt. Additional costs at the margins will hurt. But UK managers will find a way to cope even as some business at the margins goes to other financial centers.
Karl Egbert is a partner in the financial services group at the Dechert law firm.
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