Brexit: ‘France is not the bad guy’

Key figures in France’s asset management industry have begun to speak out about what they say is a mis-characterisation among some in the UK, that their country is out to destroy the UK’s financial services industry, for its own benefit – as highlighted in a controversial memo leaked and published last year in a British newspaper.
Here, Adrien Paredes-Vanheule, of International Investment‘s sister publication, InvestmentEurope, reports.

“They are crystal clear about their underlying objective: the weakening of Britain, the ongoing degradation of the City of London.”

The Brexit story has taken on something of a vaudeville air since last July,  when the British tabloid newspaper, The Mail on Sunday, published a leaked a memo written by the City’s Brexit envoy Jeremy Browne, about a trip he’d made to France a few weeks earlier to discuss the matter.

In the memo, Browne reported that the French Central Bank was “in favour of the hardest Brexit” and actively was hoping for a disruption of the status quo. “We should nevertheless have our eyes open that France sees Britain and the City of London as adversaries, not partners,” he wrote.

By a timely coincidence, InvestmentEurope happened to catch up in Paris on 17 July – the day following the leak of the memo – with Xavier Parain, head of the Asset Management Directorate at the French financial markets regulator,  and Eric Pinon, the chairman of the French asset management representative body AFG.

Responding to the news of the leak, Pinon insisted: “France is not the bad guy.”

“We have not voted for Brexit,” he told us.

“British voices suggesting that France would like to fight the financial City of London get it wrong for two reasons.

“Even with Brexit, the UK will remain an important economic partner for European financial places. Also, global – mainly US –asset managers will not completely [abandon] a key overseas hub that maintains an edge regarding certain aspects of the investment industry.”

Pinon, pictured left, noted that the “evolution” of such issues as the the loss of fund passporting rights in Europe, and the setup of potential so-called “letter-box” entities, would be monitored closely by the French authorities, who would not be giving special treatment to non-British companies.

In this, he’s referring to the possibility of “serious risks of development of letter-box entities in the EU” which was raised by  raised by the European Securities and Markets Authority (ESMA) in its latest report.

“We highlight that the same rules shall be applied to EU and non-EU based investment firms, in order to avoid an un-level playing field,” Pinon said.

“We don’t want to leave the door open to things we would not be able to control later.”

In order to avoid the mis-use of delegation in a post-Brexit world, and if ESMA doesn’t have the necessary tools to do it itself, Pinon believes, the EU authorities should consider amending the relevant directives.

Re-patriating lost businesses 

To be sure, Pinon admits that some of the businesses that the UK may see as being “stolen” from its shores would in fact be entities that are returning to France after having left their home country in recent years, in response to attractions then on offer not just in London but also in Luxembourg and Ireland.

‘No plans for delegated investment management cut’

Parain, of the Asset Management Directorate, also argues that fears of an exodus of French delegated investment management business from British firms, post-Brexit, are unfounded.  

“We have absolutely no plans to do this,” he insisted.

“France is not trying to close business opportunities in France for non-French managers. We are pleased with French investment firms delegating management to British, US or Japanese asset managers, if they find a better expertise on certain asset classes in these companies.

“Regarding open distribution and marketing, we are not against a sane competition between players. We want the financial market to be the largest and most opened as possible in order to provide French investors with an access to a large range of diversified fund offering,” he adds.

Parain asserts that the French regulator’s view goes beyond Brexit, quoting the example of Mifid II. On the contrary of certain European regulators for which Mifid II means investment firms will only sell a careful selection of funds to a certain type of investors, the AMF plaids for more open-architecture and an access to the deepest fund offering for investors.

Parain highlights that Brexit may possibly alter the relationship between the EU and the UK and that the delegate investment management possibilities between French firms and UK asset managers will more or less resemble to these existing between French firms and US asset managers.

“We are vigilant on the way delegated investment management outside EU will be strictly overseen by asset management companies based in Europe. That means that EU entities willing to delegate will need to have sufficient means to control all investments that are delegated.

“If they establish themselves in France, the AMF will then monitor closely their structure to ensure that the framework around delegated investment management is robust enough to control the delegation. Our message is no different from that of Esma,” he explains.

Moving out

Relying on various sources, InvestmentEurope can reveal that at least three London-based asset management companies have filed documents with AMF to be granted an asset management licence in France. They should obtain the regulator’s green light and move to Paris in Autumn.

By the end of 2017, three to six more London-based boutiques may relocate to Paris.

Among potential departing managers remain Clerville Investment Management. The firm’s partner Alban de Clermont-Tonnerre said to French newspaper Le Monde that it could be taken for granted that Clerville Investment Management is to open an office in Paris.

Hard Brexit

“In the event of a hard Brexit, investment firms operating from London will have to adjust their business plan if they want to continue developing their business in continental Europe,” Parain acknowledges.

AMF’s head of Asset Management Directorate only confirms that 30 to 40 cases of investment firms that consider moving all or part of their activities from London to Paris.

“Small and mid-size hedge funds that tally French individuals within their staffs are logically thinking of Paris as an option,” Parain says.

Eleva Capital, the boutique founded by Eric Bendahan in London in 2014, became the first manager to relocate to Paris ahead of Brexit earlier this year.

Paris-based Reinhold & Partners, a consulting and advisory firm which includes among its areas of expertise the setting up of asset management companies in France and abroad, was involved in that relocation.

Bertrand Gibeau (pictured left), partner and head of business development at Reinhold & Partners, noted that Eleva Capital’s move had “paved the way for other moves”.

“We mostly target London-based asset management [firms] that have French top executives or employees, ahead of Brexit,” he adds.

He notes that among those firms looking to move, “it appears there are multiple criteria to select a new base”.

Gibeau counts meetings with around 30 companies, and says those worrying the most about Brexit are these with a large investor base located in continental Europe.

Would the decision of an asset management giant to relocate part of its European activities to Paris make the case for the French capital?

“A move to Paris from an asset management giant might trigger other moves. If the three top investment firms relocate their European headquarters to Paris, the three top brokerage companies might follow.

“But London-based boutiques give a lot of importance to the successful transfer of Eleva Capital to Paris in their considerations because they may think that an arrangement has been found between the French authorities and large asset management players.”

Gibeau ends with a question, to which he offers no answer.

“What is the competitiveness of Paris as a financial hub worth – one BlackRock or 30 Eleva Capital?”

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