Brexit LP view: “So many letters”

Investors say they’ve received heaps of communications from managers on Brexit. So many that they’ve stopped reading them.

In the days following the UK referendum that surprisingly saw the majority vote to opt out of the European Union (EU), investors were flooded with messages from managers outlining their views on Brexit. Michael LeVar, managing director of income strategies at Ascension Investment Management, said he received 60 such letters by last Thursday (30 June). “It’s so many, I have stopped reading them,” he told PDI.

Keith Berlin, director of fixed-income and credit at Fund Evaluation Group, which advises foundations and endowments on investments, felt much the same. He said he received about 150 different letters. “It’s overwhelming. I’ve lost interest after a while,” he said.

Berlin himself and the managers writing to him mostly had a similar view: that they didn’t believe it was going to happen. The shock around Brexit sent global stocks, the British pound, the Euro and other indices down a steep tumble. Though in the past week or so, many of these have recovered.

Of course, this doesn’t mean everything will permanently return to business as usual. Investors on both the LP and GP side said it remains to be seen what the long-term effects of Brexit will be. “The responses have been all over the board: from this is a non-event to it’s a big deal,” said LeVar. “It’s a political crisis that can morph into an economic crisis, if it’s allowed to,” he cautioned.

Some of the managers writing to LeVar posit that “this is the beginning of the end and that the EU isn’t functioning the way it’s supposed to,” LeVar told PDI.

He pointed out that managers’ and markets’ reaction to Brexit can become a cautionary tale. “Part of the potential problem is that if markets carry on and people stop caring, it could empower every other group that wants to leave because they can now say ‘the UK did it and nothing happened’.”

The most far-fetched response that LeVar has seen from a manager, whom he declined to name, was that Brexit will lead to a chance for Russia to re-establish its dominance and get a spike in the oil industry. “The UK and US have no leadership, which brings a big opening for Russia to coordinate 175,000 Iranian troops to march through Iraq and into Syria to help end the war which is bleeding Russian resources,” LeVar said describing the manager’s view. “At the same time, they’re going to attack Saudi Arabia with cyber-attacks, creating a big spike in oil which will help the Russian situation because there is a big void in any kind of will or desire to address any foreign policy issues right now,” he said, explaining that firm’s position.

LeVar and other LPs also expressed surprise at the speed at which they were getting letters from some of these firms. They suspect many wrote two views for either the “in” or “out” scenario ahead of the vote. “The compliance departments around the industry were all cued up and I’m sure they had two reports ready to go, whether it was yes or no, and then blasted e-mails to everyone,” LeVar said.