Sovereign wealth funds 'ring-fence' UK assets ahead of Brexit

[LONDON] Northern Trust Asset Management's largest clients including sovereign wealth funds are separating their UK assets from their European and global portfolios as they await the outcome of Brexit.

About 30 per cent to 40 per cent of the mainly institutional clients that invest with the US$1 trillion asset manager have asked to segregate their UK holdings to manage the risks associated with the talks to leave the European Union, said Wayne Bowers, chief executive officer for Europe and Asia.

Northern Trust's most "sophisticated" clients are doing this to be more "tactical", he said.

"They want to ring-fence their UK exposure," Mr Bowers said at a press briefing at Northern Trust's London office. It doesn't mean that they'll look to sell, he added.

Mr Bowers said clients took similar action during the global financial crisis, when they separated banking holdings from their other assets. After the crisis, the financial sector rebounded.

Even so, an Invesco report last month found that sovereign-wealth funds and central banks may reduce their UK holdings as sentiment toward the country deteriorates in the wake of the Brexit vote.

The International Monetary Fund this week cut its 2017 growth forecast for the nation.

"It's going to be tough," said Mr Bowers, who's also the firm's chief investment officer.

While the government spends time hashing out a deal with Brussels instead of focusing on the economy, "there will be an opportunity cost for Britain," he said.

The pound's weakness will mitigate some of the economic slowdown, Mr Bowers said.

Still, tariffs are one of the biggest risks for Britain, which has less experience in negotiating trade deals than the institutions of the EU, he said.

BLOOMBERG