The New City Initiative (NCI) has called for the establishment of a new UK fund structure, which could 'rival' the successful European UCITS and AIFMD models, and has argued that tax reform is vital to promote the UK as a 'leading centre for investor protection.'
A new report authored by Charles Gubert, a consultant to the group, argued that a UK competitor to the EU's UCITS, which recently achieved €10trn in total assets, and AIFMD structures would encourage "competition to thrive" and help "facilitate the onshoring of more asset servicing roles," which would in turn help generate jobs in the regions of the UK.
Such a UK fund structure could follow the recommendations of the Financial Conduct Authority in the wake of Woodford, tightening liquidity requirements to differentiate itself, or it could incorporate Investment Association recommendations and set up as a "long-term asset fund", abolishing daily redemptions from investment vehicles trading illiquid securities, NCI said.
Innovation by entrepreneurial UK asset managers in delivering access to investment markets via collective investment schemes has gone hand-in-hand over the years with the development of ever wider investment expertise."
Other recommendations in the report include loosening capital requirements and strengthening depositary oversight to support client protection.
To convince investors to transfer to the new model, switching should be "as easy as possible" and even an incentive such as fee discounts for early converters should be considered.
Such a fund structure would only be possible, according to the report, if the UK simplified its tax treatment rules for foreign investors and adopted a policy of "tax neutrality" akin to Ireland and Luxembourg.
These reforms could include exempting non-UK investors from UK tax on investments or insulating non-UK investors from any withholding taxes on payments from their funds.
The report argued that onshoring a popular UK fund structure would bring many benefits, including reduced costs and increased jobs regionally as many asset servicing functions "do not necessarily need to be carried out in London".
If managers were to set up shop regionally, the cost benefits include office space savings, from £175/square foot in the West End to roughly £34/square foot in Birmingham, for example, along with talent savings.
"According to Glassdoor, an assistant vice president in Birmingham at Deutsche Bank earns £55,000 compared to £75,000 in London," the report cited.
Nick Mottam, chairman of NCI, said: "Innovation by entrepreneurial UK asset managers in delivering access to investment markets via collective investment schemes has gone hand-in-hand over the years with the development of ever wider investment expertise.
"Both fresh and familiar challenges, from the covid-19 economic shock to Brexit, are emerging, which make the UK ripe for a new generation fund structure which could also be a catalyst for industry and job growth in servicing the assets invested in a new UK domiciled funds structure."