Practical analysis for investment professionals
28 November 2016

Britain’s Brexit: A Variant of the Norwegian Model?

Brexit panel discussion

“We are in unchartered territories, no country has ever left the European Union,” said Liam Halligan, economist and former fund manager, in a wide ranging panel discussion at the 2016 CFA Institute European Investment Conference. Four investment professionals on stage discussed whether Brexit will end up being a Norway model, a Swiss model, a Liechtenstein model, or a Turkey model, with the UK in the customs union, but out of the single market.


Pieter van Putten, CFA, founder of Cassia Capital BV, showed the audience a slide mapping the UK’s European Union (EU) Referendum results regionally, illustrating thin support for the EU outside of London. “The strength of feeling is very strong, particularly among the regional business community,” Halligan said. According to van Putten, “It will go ahead probably in a somewhat watered-down version.”

Kate Lander, CFA, head of learning at Fitch, said that she was “extremely passionate about protecting the London-based financial markets.” But Lander made a broader point about the general lack of diversity in the industry and the more specific role of investment team diversity in portfolio management, both of which mitigate the risks accumulated from too much gender and ethnic homogeneity. Lander felt that Brexit could only make the lack of talent diversity worse. “One of the biggest concerns that we have in London at the moment,” Lander said, “is the impact [of Brexit] on attracting the right talent, nowhere more important than to this industry.” For her, the referendum became a vote not on whether London leaves the EU, but a vote on immigration and wider issues.

Boris Bernstein, CFA, a director at Deutsche Invest Equity Partners, said he was attracted to the bright lights of London early in his career. Recently however, Bernstein was concerned about the high level of uncertainty. “We really don’t know which of the four or six scenarios it will actually be,” he said. After the initial bewilderment, Bernstein thinks markets are now signaling they are more relaxed about the situation, particularly if the British adopt one of the alternative models of Brexit rather than a “hard” Brexit.

A New Financial Capital for Europe?

Bernstein believes all the European financial centers are positioning themselves to benefit from the final outcome. Although it may end badly for all, Frankfurt is likely to be the relative winner of Brexit. For van Putten, “It is often difficult to distill this effect from general trends. Frankfurt is growing tremendously because of the ECB already.” He believes it will be not one, but a couple of cities, including Dublin, that will benefit — mostly focused on middle- and back-office operations.

“If Britain gets out of the passporting system,” van Putten said, “it will make life more difficult necessitating a dual approach, with higher expenses, and ultimately the investor will end up paying.” Lander suggested that London’s current focus be to plug the holes created by Brexit, replacing links to a slower-growing Europe with increased international trade links, but she worries about the long-term implications for the culture.

Pour Encourager Les Autres

“The Brits are quite a pragmatic people,” suggested Halligan, “but will Europe allow us to exercise that pragmatism given that there is quite a head of steam to punish the Brits to avoid encouraging the others?” Bernstein explained that there are genuine issues in the EU — such as the so-called democratic deficit. “I think a lot of that has been corrected,” he said, “around the budget, for example, spending on agriculture, and just general transparency.” Bernstein concluded by suggesting that the UK is heading for a workable variant of the Norwegian model.

“There might be a lot of problems out there,” van Putten said, “We are entering unchartered territory with political figureheads who become less predictable.” All these matters make it ever more difficult to plan businesses and portfolios.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: Courtesy of Martine Berendsen Photography

About the Author(s)
Mark Harrison, CFA

Mark Harrison, CFA, was director of journal publications at CFA Institute, where he supported a suite of member publications, including the Financial Analysts Journal, In Practice summaries, and CFA Digest. He has more than 12 years of investment experience as a portfolio manager and securities analyst. Harrison is a graduate of the University of Oxford.

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