How Brexit changed work opportunities in Luxembourg and London’s Financial Industry

The Brexit vote, coupled with austerity, has hurt UK households more than any recession in the past 60 years. Now the pound has slipped further from a 27-month low against the dollar and slid to a new six-month low against the euro.

Boris has vowed repeatedly to take the U.K. out of the EU, with or without a deal, and wishes to scrap the Irish backstop – a key part of May’s earlier Brexit agreement. It is now likely that the UK will leave the EU, with or without a deal, by November.

Many others and I hoped for a second referendum. But the momentum ended in a strange style after the EU elections, where the will of the British people became clear.

They weren’t even supposed to be voting on Brexit. It wasn’t a vote about the UK’s place in Europe. But UKIP won a huge number of seats away from both of the mainstream parties; Labour and the Conservatives.

The message was clear: we asked for Brexit, and you haven’t delivered.

In business, the fact that Brexit hasn’t happened doesn’t even matter. The sheer potential of a pause in business has prompted hundreds of investment firms, promoters and fund service companies to re-think their people footprint. And act.

Long term shift in power to centres trading easily with Europe

What happened over the last 2 years has been a gradual, but long-term shift in oversight power, designed to protect companies’ right to trade with Europe post-exit.

For most of the last century, firms relied on a UK labour-force, but also on having access to the EU common market. With even a small chance to trade easily with Europe at risk, hundreds of fund managers and investors found themselves in an unexpected position of reviewing their key locations, key staff, and getting into the nitty gritty of EU labour law and appointing local Directors.

We wrote back in May of 2017, about the ways in which the Brexit vote had impacted Luxembourg. The blog had a life of its own. Everybody was looking for information. Nobody knew what Brexit actually meant. And nobody saw it coming.

Some investment firms took more than 2 years to accept Brexit was the new reality. In the weeks leading up to the first deadline of April this year, we found ourselves staffing up Fund Managers quickly for firms who suddenly realised the threat to their EU operation.

Here are the key themes of the last 2 years:

Even smaller managers are moving towards more regulated structures

We have spoken before about the growing number of REPE/ Debt Funds choosing to domicile in Luxembourg as the domicile of choice in Europe. The success of the product suite, the ‘tool-box’, the languages of the staff and the cross-border skills here are second to none. Investors are comfortable with Luxembourg, and on the funds side, the jurisdiction has clearly affirmed its status as a robust location since the crisis and various OECD enquiries.

This was an essential factor in attracting new funds; and judging by the latest AUA and AUM (€4,404 bn) held here, Luxembourg is getting it right.

Traditional Funds vs Alternative structures

With the threat to the business licenses needed to operate in Europe, most fund managers have either developed management companies locally, or when smaller, given the work to a trusted 3rd party to carry out the management company oversight.

As a result, the largest requirements we have had over the last couple of years have come from both internal and third-party management companies. The shortage in staff in some areas has been more extreme than others, and especially in cases of clients needing very specific regulatory knowledge.

The key drivers behind job opportunities are related not only to the business-type, but also the home location of the firm. While for REPE funds Luxembourg dominates across the board, management companies with Hedge, or Mutual Funds have also grown in Luxembourg.

US-based managers are more evenly split between Dublin and Luxembourg, but in cases where they distribute a lot in the EU, Lux has won. For those with a stronger Hedge component, and less of an EU distribution footprint, Dublin has won out.

Conducting Officers trend continued, and increased, yet again

Brexit added to the ongoing trend initially started by the (then new) AIFMD and ManCo regulations. Last year when we released our annual salary guide, we added not only one new entry for this position, but two.

This is because we could not classify all Conducting Officers as the same anymore. While this used to be a title reserved for the most senior levels of fund organisations, since the latest regulation, this has become more varied, and definitely greyer.

Some profiles are clearly less senior but still able to do the necessary to ‘keep the lights on’ and comply with CSSF box-checking, and others were driving very impactful decision-making and governance at Board-level.

They are just not the same roles, and the people required to do them also very different.

More middle to front expertise required

We are not at the stage yet where we are busy hiring many front office staff in Luxembourg. With the difference in culture, and attitudes to work still predominantly European, we are not sure if the local population will ever become a major rival to the front office teams of other investment centres.

It would take a large influx of people with a different mindset to change the status quo. A change in the labour law could eventually succeed in shifting attitudes, but knowing a bit about European laws, this seems quite unlikely. The labour laws of this group of countries is designed to protect individuals, and this is great when you are an individual.

It is not so great if you are a company. Ultimately, the success of the financial sector in London is partly tied to the fact that people are driven to perform, because their job actually depends on it. That is not the case elsewhere.

But here in Luxembourg, it doesn’t need to.

Because with the size of the middle office growing the way it is, the best opportunities are here in Luxembourg anyway. In the last 15 years, we have never seen the kind of shift away from investments to middle office like we are seeing today.

Front-office candidates looking for middle-office roles

Today it is not unusual for a portfolio manager to ask us to find them a job in risk, or investment bankers to ask for a move over to the buy-side.

This is a paradigm shift that would have been unthinkable 10 years ago. Who would have thought that risk would be the new sexy?

With the limited amount of gain in securities, limited appetite for investor risk, downward pressure on management fees – due to competition from ETFs, and the growing size of the regulatory piece – risk suddenly seems like an appealing option for smart, creatives who want impact. Smart people just want to have fun.
Good jobs follow investment, and right now, the biggest investment is still in regulation.

While the investment banking sector publicizes job cuts each quarter, the latest restructuring plans by Deutsche Bank and HSBC taking shape this summer, the buy-side, and the shadow banking sector, is still growing.

This does not mean we are inundated with clients who want ex-investment managers, because at the senior level clients almost always want people who have been doing a similar role for their entire careers, but candidates are aware of what is happening and moving across to stay relevant.

Move from Feeder – Master to Master – Feeder structure

It used to be in the past that Luxembourg was always the Feeder structure into a Master in another location. These days it is much more likely to be the other way around, with a Lux Master fund, with Feeders in other locations. Almost all the growing funds are moving towards a more highly regulated structure in Luxembourg in the future. Some companies have built up offices in parallel in other lower cost locations at the same time, and this trend will continue. Usually places where staffing costs are lower and employment laws are more flexible.

Attracting, retaining, and managing out issues are the main challenges asset managers face when they come to build in Luxembourg. It is not that the potential is not here, people here are smart, and can be very hard working, but it’s finding the right culture fit to work with their teams that is the most complex.

For our top tips on how you best build up teams here, and avoid the common pitfalls companies make, please sign up for our company blog, and LinkedIn Group.

We will also be leading a webinar in September with one of the best employment lawyers we have found on the ground in Luxembourg, to help any asset managers or funds businesses, looking for on-topic employment law advice. Stay tuned. You will thank us for this later!

The topics we will cover are the following; senior AM remuneration, employment law differences – between the UK/US and Lux, and there will be some time for a short Q&A at the end.

In order to sign up for our Webinar, please join our LinkedIn Group, Funds Recruitment Platform – Luxembourg, and look out for the Webinar invitations.

Europe is Europe. Perhaps the UK has always been a little different.

That little stream of water that separates the UK from Europe has a lot to answer for.

Stay in touch with us to ensure your people ideas don’t crash out when Boris exits Britain from the EU.

 

 

Written by: Rana Hein-Hartmann, EMEA Director.

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