How can trustees prepare for the Brexit referendum?
Prime minister David Cameron has made a commitment to holding a referendum on the UK’s continued membership of the European Union on Thursday the 23rd June. This follows his announcement of a new deal renegotiating the UK’s membership terms.
While Cameron supports the UK’s continued membership in the EU, 6 out of 22 of his government ministers declared support for Brexit, along with influential London Mayor, Boris Johnson.
Sanjiv Shah, chief investment officer at Sun Global Investments, said: “Boris Johnson’s announcement that he is going to campaign on behalf of the Brexit campaign has triggered a 1.2% drop in the value of the Pound against the Euro, prompting concerns that it will continue to weaken as doubt over the outcome of the referendum increases.”
Mixed results from polls conducted after the latest announcements make it hard to confidently predict an outcome.
Based on internal analysis, Pioneer Investments assess the probability of the UK leaving the European Union to sit slightly below what has been forecast by most recent polls.
What does this mean?
The referendum is already dominating headlines, especially as new campaign groups both for and against begin to draw battle lines.
Trustees should speak to their investment managers to make sure they have a plan to deal with market volatility in the run-up to the referendum and possible market shocks if the ‘out’ vote wins.
Pioneer Investments’ head of government bonds Cosimo Marasciulo believes that ”a Brexit scenario would likely lead to lower ratings for the UK government and, by implication, potentially UK companies as well”. He argues that the pound will likely continue to be under pressure.
Law firm Gowling WLG suggests that trustees may also want to consider currency hedging and exposure to non-Sterling-denominated investments to protect themselves.
What will happen next?
Schemes should hold meetings with their advisers to discuss plan risks and what the next steps might be, particularly if it looks possible that the UK will decide to leave the EU.