This year’s Funds Congress organised by Carne, Dechert LLP and PwC, was the biggest and most successful to date, with the annual networking event bringing together leading fund managers, CEOs, thought leaders and policymakers.
Now in its ninth year running, there the talks and presentations touched on topics such as the future of capitalism, the state of the industry, the regulatory outlook, as well as a lively debate around the future of the UK – and its financial services industry – after Brexit.
The speaker line-up was also once again stellar, with panelists including the former House Speaker John Bercow, Standard Aberdeen’s Chairman Martin Gilbert, Franklin Templeton’s President and CEO Jennifer Johnson, as well as leading policymakers from the FCA, CBI, CSSF, and the AMF.
Overall there were over 1,000 guests in attendance, with many of AQMetrics customers, partners and industry peers in attendance, along with the AQMetrics UK team. Here are our top takeaways from the event.
- Liquidity is a key focus for regulators
2020 will be one of the busiest years yet for regulators, according to the regulatory outlook panel, with liquidity set to become a key focus as the year unfolds.
‘There will be a significant focus on liquidity, so we will be implementing the 2019 recommendations of ESMA ’ said Kevin Mullen, Head of Markets Policy at the Central Bank of Ireland.
That sentiment was echoed by both the Financial Conduct Authority (FCA) and the Autorite des marches financiers (AMF). ‘Liquidity risk is absolutely an irreducible part of what fund managers have to do,’ said Nick Miller, Head of Asset Management at the FCA. ‘This includes the entire product governance and life cycle of the product – including redemptions. We can’t have first mover advantage with investors scrambling to get out of funds before others.’
And the renewed focus will see further cooperation between the regulators. ‘The current exercise reveals a lot about the new mindset of the regulators and the common supervisory role we want to play,’ said Frédéric Pelèse, a director at the AMF. That will mean ‘more data collection in the spirit of an audit, and we are going to be quite intrusive.’
What was evident to AQMetrics in conversations during the breakout sessions, meanwhile, is that managers (AIFMs and UCITS alike) are starting to prepare in earnest in order to meet the requirements for the liquidity regulations.
With the stress tests coming into force in September, there are only a few months remaining before much of the regulators’ discussions become reality.
- Private markets a growth area, but beware of liquidity requirements
The shift away from public markets can be a boon for active managers, according to Aberdeen Standard Chairman Martin Gilbert, but is likely to bring a whole new set of challenges.
Research shows that private markets are growing at twice the speed of their public counterparts. Some public markets are even shrinking, with ESMA, for instance, recently acknowledging the fairly dramatic fall in liquid and readily tradable bonds across the EU.
Debt is a particularly attractive private market for asset managers, Gilbert said. Not only are managers encouraged to hold for longer periods, but the skills of fixed income managers are readily transferable.
Just make sure that the fund structure you’re using can handle the dearth of liquidity. ‘Private markets are a big growth area,’ added Gilbert. ‘But if you are going into private markets, make sure you don’t need liquidity. Because of course when you need it, it’s not there.’
- Equivalence: not a done deal
With the final talks and panels focusing on politics, it was no surprise financial equivalence was a hot topic. John Bercow, who last year stepped down as the Speaker of the House of Commons after more than a decade, offered a characteristically sharp assessment.
‘It seems pretty clear that passporting is a dead duck,’ he declared. ‘Now we are really talking about equivalency as the best option. But it is a negotiation.’
He then hosted an animated discussion on the future of the UK after Brexit, where equivalence was once again a major theme. Rory Stewart OBE, who’s currently campaigning to be the Mayor of London, said he hoped a deal could be reached, but acknowledged that there would be some economic sacrifices in order for the Johnson Government to make good on their Brexit promises.
Philip Rycroft, the former Permanent Secretary at the Department for Exiting the EU, was slightly more confident, predicting that a bare bones deal could be done. ‘However, equivalence will not look like it does now,’ he warned
But the most stunning admission came from Liberal Democrat Baroness Sharon Bowles, Member of the House of Lords and former Member of the European Parliament. She said that given the EU’s steadfast position so far, ‘I never believed that there was such a thing as a “Soft Brexit” that was workable. And I’ve never believed in gaining any kind of financial equivalence. The financial industry, regulators and the Treasury are deluding themselves over this.’
Still, the overall consensus – and one AQMetrics has certainly seen throughout market engagement with fund managers and the regulators – remains that some sort of equivalency can be reached. Given this, many have adopted a “wait and see” approach toward re-domiciling in the EU, whilst also commencing preparations for upcoming ESMA requirements in 2020.
More clarity should come in the next few months, although firms can ill-afford to be complacent when it comes to regulation.