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UK Credit Rating At Risk, Henderson CEO Warns

Voters face a stark choice at the General Election, with a Labour victory jeopardising the UK's top-notch credit rating and a potential poll on EU membership causing global companies to slash investment in Britain, one of the City's leading figures has warned.

Speaking exclusively to Sky News, Andrew Formica, chief executive of Henderson Global Investors, said the risks attached to both main parties' economic policies were profound and could trigger long-term decisions by companies to divert investment away from the UK.

"The biggest issue to come out of the General Election will be whether there's a clear mandate for either party. All the polls are indicating that it’s too close to call and no party will have a majority, and in that scenario what coalition is formed…is what's really bothering people.

"I do think you’re going to see volatility increase as people get concerned about what compromises need to be made.

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"It will make global companies investing in the UK pause as they try to und the full impact of whatever government is formed."

The alarm bell sounded by the boss of a company which manages £81bn of client assets is among the most significant yet from the head of a substantial UK business.

Mr Formica's intervention less than three weeks before polling day underlines the intense anxiety felt by many corporate leaders about the outcome of the Election.

That nervousness is reflected, he said, in the fact that Henderson's fund managers had sharply reduced their exposure to British companies in recent months.

“We’ve reduced our risk allocation towards UK-based companies during the election period.

“We are taking a wait-and-see approach and the way we are running our portfolios is consistent with what we are seeing from chief executives of the companies we invest in.

“There is a pause as people wait to evaluate what’s happening and that’s true in how we’re running our clients’ money.”

Praising the Coalition’s deficit reduction record during the last parliament, the Henderson chief said it “deserved a big tick” but insisted that staying the course remained the right approach.

However, he said the Tory commitment to a referendum would endanger the UK’s status as an attractive investment destination.

"I definitely think the risk is the potential for long-term capital allocation away from the UK.

"It would be very difficult for a global company which has used the UK as its European headquarters to continue its investment until the result is clear.

"I do think there is a real risk that investments that could be made anywhere in the globe could move from the UK to other jurisdictions."

He said that a UK vote to leave the EU would be “a watershed moment”, and said it would be far harder for Henderson to access the single market’s 500m savers if Brexit did take place.

“One of the reasons the City of London (LSE: CIN.L - news) is the second largest financial hub in the world is because the UK is part of Europe.

“If we were to move away from that I think the long term impact would be quite profound.”

Mr Formica also warned that Labour’s broader approach “could be quite detrimental to business” and undermine Britain’s economic stability.

“A Labour victory has the potential to put the UK’s credit rating at risk,” he said.

“Having got that economic stability, we have been in a much better position than many of our European peers such as France.

“If there was a change to the current austerity measures and to business taxation and the like, you do run the risk that the UK’s credit standing could be altered.”

The inconsistency of regulators around the world was also the subject of criticism from Mr Formica, an Australian by birth who has run Henderson since 2008.

He said that UK watchdogs were applying a ‘one size fits all’ approach to the asset management industry in a way which unfairly conflated it with the banking sector.

“It’s prob getting worse [in the UK] from an asset man point of view.

“What we’re hoping is that through engagement and discussion that we can get to a better outcome, but at the moment it remains uncertain.”