What is Kames Capital’s position after the Brexit vote?
We are fortunate. We have two product ranges, one in the UK and one in Dublin. Dublin is the one we primarily use for continental European distribution.
Our operation is business-to-business. A lot of clients in London have been buying our Dublin vehicles because they want gross roll-up and currency optionality. Post Brexit, we are in a good position because our Dublin range will remain in the EU as long as Ireland does. I do not foresee any challenges there.
We have an arrangement between the Dublin entity and the UK business in terms of assets and managing money for those units. We meet all the requirements for the Dublin regulator. However, regulators in Luxembourg are insisting managers based there do not merely use shell businesses. Firms have to have substance, for example, people on the ground.
It is not an issue at the moment but it is on the agenda of Irish regulators. It could mean we have to have people in Dublin. We currently have Irish directors, and we use an Irish law firm and Irish pricing operations. We do everything we need to do and we are one of a number of entities that have the same structure.
I think changes could come into play towards the end of 2017, driven by the fact that regulators recognise they have an industry they do not get the tax benefits from to the absolute degree, because those businesses that run funds from Dublin platforms are shell companies.
Is Dublin more significant post Brexit?
Absolutely. Dublin is well liked in Europe and Asia, and in terms of the US offshore markets, it is acceptable.
We have a growing number of UK clients, particularly at the higher end of the spectrum buying our Dublin vehicles. This is because global senior management is now moving around various countries, either with different institutions or corporate entities, to get the currency variation, which is understandable.
You now have a presence in 14 European countries. What is the relative importance of these markets?
Europe as a trading bloc is a series of separate countries where the people have very different appetites for risk and how they save. Germany is a conservative nation, favouring fixed income and absolute returns, while Sweden is slightly more aggressive in terms of its mix.
One of the key reasons we entered the Swedish market is we have just launched a global sustainable fund and that market is very pro that style of fund.
Swedish consumers want funds that are actually going to do some good for the world. ‘Good’ is a dreadfully trite word, but they are looking for businesses that make a difference. We see sustainability becoming one of the big themes going forward.
Historically, it has been ethical investing, which is a sort of negative screening, whereas this is far more about looking for businesses to change the way they operate.
People always cite the 2008 financial crisis as the catalyst for the momentum behind this theme but, in places such as Sweden and Holland, it has been prominent for a long time now.
It is important to expand in a sensible manner, ensuring when we are not entering a market that our products are appropriate.
For a business such as Kames, which has a fantastic fixed income franchise, Germany was an ideal market. But there was also a growing demand in the German market for vehicles that offered outcome, cash plus, hence our Absolute Return Bond Fund.
How does this all sit with the trend away from fixed income to multi-asset?
That is what has happened in places such as Spain, which is big buyer of multi-asset funds. In Italy, which is also fond of multi-assets, they are looking for vehicles that give the end client an outcome, hence we launched income-based multi-asset vehicles in continental Europe.
Europe has an ageing population, similar to the UK. These populations will probably be the biggest beneficiaries of the asset drawdown that is going to take place, for example, baby boomers reaching an age where they will be retiring and looking for income.
Annuity rates everywhere are dreadful. In most markets where annuities have been made non-compulsory, you initially get a massive fall in their sales but, longer term, some consumers return to them and they account for roughly 25% of what they were prior to the abolition of compulsion. You can see that in places such as Australia and South Africa.
One of the few areas that has stood the test of Brexit is multi-asset, which has actually regained momentum in certain markets.