Melville Rodrigues advocates that the reset needs to implement improvements that address post-Brexit challenges
Brexit fractured EU and UK real estate fund managers’ modus operandi. It has dislocated their capacity to attract significant capital – which is crucial for building affordable homes, regenerating our communities and contributing to EU and UK economic growth.
The reset is an opportunity to address post-Brexit challenges and ensure improvements for fund managers (regulated as alternative investment fund managers (AIFMs) in both the EU and the UK) are delivered.
Previously, EU AIFMs had a seamless, UK-centric (invariably London-centric) operating model, but on account of Brexit they have had to switch to a more complex, supervision-heavy platform in which the UK is treated as a third country. Post-Brexit, EU AIFMs face stricter scrutiny on delegation to UK portfolio managers, heavier oversight of outsourcing to UK firms, and pressure to demonstrate real substance within the EU.
UK AIFMs no longer enjoy seamless access to EU investors – and cross-border marketing and management with minimal friction. The pre-Brexit passport-enabled structure has been replaced with costlier multi-jurisdictional and compliance-focused approaches. UK fund managers may have to launch more funds in the EU. However, in many cases, this has involved navigating a dual-hub split between EU substance and UK expertise.
For both EU and UK AIFMs, outcomes include:
- Higher operating expenses and inevitably reduced returns for investors, including their pension fund savers;
- An environment that encourages consolidation, where large fund management houses aim to operate with greater economies of scale, while small and mid-sized managers face a more daunting market.
The UK has lost ground in EU-facing fund business. In practice, the main EU hubs of Luxembourg and Ireland have reinforced their centre of gravity for EU investors and products.
The UK’s legislative focus has aimed to enhance its status as a global alternatives hub – for example, through reforms to its funds regime with the Qualified Asset Holding Company, Long-Term Asset Fund, Reserved Investor Fund and unlisted real estate investment trust, and plans for business-friendly and cost-efficient regulations. The latter includes Sustainability Disclore Requirements (SDR) – the UK’s equivalent to the EU’s Sustainable Finance Disclosure Regulation (SFDR) – and the UK AIFM regulations consultation, in the context of EU AIFMD. The UK looks to offer a stable, predictable and moderately light-touch regime together with its expertise, language and rule of law.
Reset opportunity
The EU and UK real estate markets are connected profoundly. Despite the Brexit changes, significant cross-border financial flows remain due to the proximity and deep integration of the markets.
Post‑Brexit market conditions – marked by the end of the ‘era of free money’, cost‑of‑living pressures and geopolitical uncertainty – combined with a new UK policy direction since the 2024 general election, have focused on a broader reset culture albeit respecting sovereignty issues: a culture shared with the European Commission.
Industry hope is for improved alignment so that EU and UK AIFMs can operate more efficiently and achieve cost savings. This can result in greater returns for fund investors and their pension scheme savers.
The UK government needs to demonstrate deliverables from this policy focus before the next general election. This is a deadline of August 2029, at the latest. Reassuringly, the European Commission is working “on policy proposals under the Savings and Investment Union initiative, which amongst other things aims to …..reduce operational barriers facing asset managers, for the benefit of EU citizens” and “fully share the objective to achieve better returns for pensioners in institutional pension funds”.
The mutual goals should include clearer cross-border rules, more predictable supervision and better conditions for raising capital for both EU and UK AIFMs. An appropriate level playing field between large and small and medium-sized managers is also desirable.
I urge policymakers to turn the Joint EU-UK Financial Regulatory Forum from a talking shop into a dynamic negotiating delivery vehicle, to which industry stakeholders are invited to make representations. The forum needs to produce improvements AIFMs will actually feel. The action plan must include measures to improve access for both UK and EU AIFMs, as per below.
- Improve access for UK AIFMs to EU professional investors – for example, minimise ‘gold plating’ under the patchwork of National Private Placement Regimes (EU AIFMs currently enjoy relatively streamlined market access to UK professional investors).
- Improve access for EU AIFM to UK retail investors through EU AIFM retail funds that are sufficiently equivalent to UK Undertakings for Collective Investment in Transferable Securities (UCITS) under the Overseas Funds Regime, and establish reciprocal arrangements for UK AIFMs.
The action should also reduce unnecessary duplication between the EU and UK, by streamlining reporting, including the acceptance of home-state reporting formats with limited EU or UK-specific additions.
Let’s have a reset that delivers, as soon as practicable, meaningful improvements for EU and UK AIFMs – let’s create better returns for pension savers and enhance the prospects of EU and UK economic growth.
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