Asset management and private equity firms view the UK as the second riskiest market to do business in after China, according to new research from global law firm Ropes & Gray.
The research – based on a global survey of 300 senior-level executives working for multi-national businesses in North America, EMEA, Asia Pacific and Latin America, in the banking, asset management, private equity, life sciences, healthcare and technology sectors – reveals that 19 per cent of asset management firms and 14 per cent of private equity houses cite the UK as the market that poses the ‘most significant risk’ to their businesses.
By way of comparison, just 2 per cent of asset managers and 2 per cent of private equity firms named France and neither group cited Germany. More than a third of both groups (38 per cent of asset managers and 36 per cent of private equity firms) viewed China as the riskiest market. The US was identified by both groups (11 per cent of asset managers and 14 per cent of private equity firms) as the world’s third riskiest market, after China and the UK.
Amanda Raad (pictured), international risk partner at Ropes & Gray points to the recent number of regulatory and enforcement changes seen in the UK as a reason why investors view the UK as a risky market to operate in.
“There has been such a dramatic change in the regulatory and enforcement landscape of the UK – just as there has been in China – over recent years that investors must quickly adapt. Added to this mix is Brexit, which is only adding to the uncertainty,” she says.
The report also reveals that the majority of multi-nationals (57 per cent) do not feel their current risk management policies and practices meet present needs. Even more (69 per cent) worry their current practices will not be enough in the future.
These figures are even higher for the private equity industry, with 70 per cent of private equity firms admitting their current risk management policies and practices don’t meet present needs and 80 per cent worrying their current practices will not be enough in the future. Asset managers are more confident, with just 46 per cent admitting that their current risk management policies and practices don’t meet present needs. But, again, 70 per cent worry their current practices will not be enough in the future.
Most multi-national companies (57 per cent) listed ‘regulation and compliance’ as the top type of risk they’re least prepared to address, with 78 per cent saying they intend to devote the most risk management resources to deal with regulation and compliance risks in the future.
Again, these figures were even higher among the investor community, with 64 per cent of private equity firms and 62 per cent of asset managers admitting they were least prepared to address regulation and compliance risks, while 84 per cent of private equity firms and 80 per cent of asset managers said they planned to devote more resources in this area going forward.
Raad says: “Historically, the number of legal risks faced by investors as compared to financial and reputational risks have been minimal. However, over recent years, this framework has begun to change, and investors must also consider potential legal liability relating to corruption, money laundering, anti-trust, cybersecurity, data privacy, and tax.
“At the same time, because the regulatory focus has slowly evolved over time, many companies have tried to address each risk on an individual basis, rather than taking a co-ordinated, centralised approach. This is leaving many companies now struggling to effectively prioritise and efficiently tackle the breadth of risks they face.”