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What Brexit Means for Asset Managers

Some will be impacted more than others, but we expect all of them to be caught in the undertow of declining global markets in the near term.

With the United Kingdom voting narrowly June 23 to exit the European Union, there will be ramifications for not only the British pound but for the value of equity and fixed-income assets. While the U.S.-based asset managers we cover are not quite as exposed as firms based in the U.K. or Europe, there will be an impact on their assets under management levels in the near term as global markets react negatively to the news. The longer-term problem for those operating in the region will be the increased costs associated with having to operate in a less cohesive market.

While most of the asset managers we cover have exposure to the region by virtue of investing in the stocks and bonds of European-based firms, a handful also have exposure by way of clients being domiciled in the region--namely,

That said, we expect all of these firms to be caught in the undertow of declining global markets in the near term. Although there is likely to be a fair amount of market and currency turmoil, primarily because most market participants were caught flat footed by the vote (having believed the British people would vote to remain in the EU), we're not anticipating making wholesale changes to the fair value estimates of the companies we cover.

Having reduced the valuations for most of the U.S.-based asset managers in mid-January, we held off on raising them back up again after the global markets rallied off their mid-February lows, believing that the rally was unlikely to hold (with one of the potential downdrafts coming from a U.K. vote to exit the European Union). In instances where a firm's exposure to the European markets is heavier, we expect to revisit our model assumptions to ensure that we are adequately compensating for the increased risk.

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About the Author

Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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