Although in macroeconomic terms, the impact of Brexit is negligible - 0.5% shrinkage in GDP and 0.2% loss of employment, the change in the attitude towards migration - an essential part of keeping London competitive, will have a long-term impact.
Welcome to F1GMAT’s #askAtulJose. I am Atul Jose. Today’s question is:
Q) What are the placement trends at LBS MBA for Finance professionals?
History of London as the Finance Hub
The rise of the City as the Global Financial Centre began at the end of the 17th century when the first banks were established. Barclays Bank, established in 1690, still thrives in the 21st century. By the First World War, Britain controlled over 400 million people – an estimated quarter of the world’s population. The need arose to finance the infrastructure needs and the essential trading routes of the colonies.
The migration of experts in trading and Finance from across the globe began in the early 20th century, but the extensive loss of property in the UK during World War II and the cost of seeking assistance from the US meant London began losing its shine. In the 1950s, the City was comparable with Frankfurt or Paris in terms of activities and scale of transactions. By managing $35.4 bn in assets compared to $19.4 bn managed by London commercial banks, New York toppled London as the leading financial hub.
Reforms and Removing Archaic Financial Regulations
The archaic regulations formulated over 100 years ago kept London at #2 until the Big Bang Financial reforms of 1986. Margaret Thatcher led the government deregulated the financial market, allowing foreign owners to take control of brokerage firms, removing the demarcation between traders and advisors, and the most radical – abolishing the minimum fixed commission for the trade.
Despite leading the index last year, the 2020 Global Financial Centers Index dethroned London. In the study that considered 133 factors and evaluated 112 cities, London was behind New York by 7 points, partly from the chaos of Brexit, but mostly from the saturation of the FinTech market that London had pioneered. Despite the setback, London is well ahead of the Asian powerhouses - Singapore, Hong Kong, and Tokyo.
Decline of Finance Offers in the UK
To measure the total impact on Financial Services from Brexit, let us look at each sub-sector:
1. Banking
Only 1% of the Retail and Business customers have loans allocated in the Euro region, while the majority of the revenue (55%) and employment (82%) are coming from the sub-sector.
2. Insurance
600 Insurers operate in London, accounting for 20% of the City’s revenue. Like retail banking, the sub-sector would have a minimum impact with Brexit as most services provided in the Euro region are through subsidiaries that would have low-cost variations with regulatory changes.
3. Asset Management
Changes in the regulatory environment would have the most impact on this sub-sector as the City of London manages almost 45% of all assets in Europe (estimated at 6.9 trillion pounds). European clients account for 18%, but the biggest impact would be in hedge funds - 800 of which is hosted in London. EU-based assets account for 85% of the total assets under management for these funds.
Alternative Investment Fund Managers Directive (AIFMD), established in 2013, set out a regulatory framework for alternative funds (Private Equity, Hedge Funds, and Real Estate Funds) not covered under Undertakings for Collective Investment in Transferable Securities (UCITS).
UK Asset Managers would be under additional regulatory stranglehold, as the country will be classified as a non-EU country following Brexit.
LBS MBA – A favorite for Private Equity and IB Offers
For MBAs planning to work in Finance and most likely in Private Equity (5% of the latest Class –equal representation as Investment Banking), additional skills in navigating complex regulatory roadblocks would be an advantage.
Valued Skills for MBAs – Post Brexit
Any evidence of learning or working in the Finance industry, or familiarity with implementing the law, either directly or indirectly, and association with London or European financial firms should be mentioned explicitly in the essay to demonstrate readiness for a post-MBA career in the sector.
2020 Pandemic and beyond
With the pandemic, candidates had to adapt and choose industries that have remained defiant to sudden shifts in market demands. Technology that attracted 20% of MBA candidates in 2019 is now the 2nd most popular industry (28%) behind Consulting (40%).
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