TheU.K.'s larger asset managers appear better poised than their mid-sized peers toweather what has been a significant uptick in asset outflows amid theuncertainty surrounding Brexit.

Second-quarteroutflows, particularly heavy in equities, totaled €4.6 billion, dwarfingredemptions of €355 million in the first quarter, according to data fromresearch firm Broadridge Financial Solutions.

Suchtrends are "part and parcel" of being an asset manager, according toRaghavendra Rau, former principal at Barclays Global Investors and now aprofessor of finance at Cambridge University. In an interview, he said flowsare particularly volatile at the moment because of various macroeconomicevents, such as the upcoming U.S. presidential election in November and theU.K.'s June 23 vote to leave the EU. Brexit negotiations may go on for severalyears.

Thebiggest firms are seeing huge levels of assets depart. According to a Sept. 18 Financial Times report,Schroders Plcsuffered its heaviest outflows since 2009 in the second quarter, and saw itssecond consecutive quarter of outflows.

Meanwhile has endured some 13 quarters of outflows in a row. On Sept. 12, the firmrevealed that the Financial Conduct Authority had raised its minimum regulatorycapital requirement, to £475 million from £435 million. Morgan Stanleyanalysts, in a March report cited by the FT,said Aberdeen, Henderson and WisdomTree are among the least well-capitalizedasset managers.

Schroders,according to its new global head of strategy Huw van Steenis, is one of the"most exposed" asset managers to Brexit because of its high level ofUCITS funds. Firms use the Undertakings for the Collective Investment inTransferable Securities, or UCITS, directive to sell products around Europeusing passporting rules, but must be based in an EU country to do so.

Plentiful capital

Assetmanagers were also hit by changing investor appetite, and investordisenchantment earlier in the year with emerging market-related debt andequities — two areas in which Aberdeen and Schroders are strong, according to RobertJenkins, former co-head of CreditSuisse Asset Management for the U.K. and Central Europe.

But he stressed that the large asset managers' capitalreserves are sufficient to cope without seeking additional capital.

"Schroders has excessive capital by any measure andAberdeen is, to my mind, more than adequate [in terms of capital] and certainlyof no concern to investors," Jenkins said in an interview. The outflows are not anissue of capital strength or reputation, he said.

Smallerboutiques also appear to be weathering the Brexit effect well, according toStephanie Clarke, senior vice president for global market intelligence atBroadridge. She pointed to Fundsmith LLP, which has enjoyed inflows of €1.2 billionin 2016.

"There'splenty of appetite amongst U.K. investors to buy a very strong story," shesaid in an interview. There is no "secret sauce," she said; thosefirms focused on doing just one thing, and doing it well, will survive.

Wherethere may well be consolidation, she said, is among mid-sized asset managersand medium-active managers which largely replicate indexes. These are in for atough time, she said.

Flight from equities

Therecent redemptions came especially from equities, which form a higherproportion of U.K. asset allocation compared with the rest of Europe, and aremore responsive to political shocks such as the Brexit vote.

Europeanequity funds have had a "pretty brutal" 32 consecutive weeks ofoutflows, says Clarke.

"Ican't see that we [will] continue to have such big outflows — I think it's areaction and the reaction is over" for now, she said. She added, though,that there is unlikely to be a bounce.

ThomsonReuters Lipper, in a second-quarter report into the European funds market, saidit expects the number of products to increase over the course of the next twoyears, following the Brexit vote.

Investmentmanagers based in the U.K. will launch products domiciled in the EU in order toensure their access to the continental European market, while EU-based assetmanagers could launch funds domiciled in the U.K. This may lead to "aneven higher dominance" of Luxembourg and Ireland as international fundhubs, but could also benefit the U.K. industry too, Thomson Reuters said.