UK private equity fundraising could be easier post-Brexit, with European firms in fact suffering from the UK’s decision to leave the EU, new research suggests.
The survey of more than 260 LPs and GPs by international offshore law firm Mourant Ozannes also said there were expectations of an increase in UK-based institutional investment, compared to the EU, post-Brexit.
Ben Robins, Jersey-based funds partner at Mourant Ozannes, said, “The impact of Brexit has, understandably, been most dramatically felt in the UK and Europe.
“There was a notable slow-down in fund-raising and transactional work as we approached the day of the referendum, and any momentum that still remained was quickly lost once the vote became clear.
“The Government has now set a March 2017 deadline for when Article 50 will be invoked, but while a ‘hard-Brexit’ currently looks more likely, there remains a lot of uncertainty about what the UK’s separation from the European Union will actually look like.
“We expect this to continue to weigh on transactional activity, especially institutional-backed deal flow.
“However, despite the lack of clarity, we have seen above-expectation deal-flow since the summer, which could see the UK market stabilise as we move through towards the end of the year. With the findings from this study also revealing a great deal of optimism in the private equity market, there is no doubt the picture is not all doom and gloom.”
Widespread delays to fund launches across Europe immediately followed the UK’s vote to leave the European Union, as firms adopted a ‘wait and see’ attitude ahead of Article 50 actually being invoked.
More than two thirds of UK GPs and half of EU GPs (excluding the UK) deferred fund launches following the Brexit vote, the research suggested.
Despite that caution, almost nine in ten private equity professionals globally are positive about the PE outlook over the next twelve months, a figure that increases to 93 per cent among those based in the UK.
That optimism could partially be due to an expectation of cheap assets becoming available amid wobbles across the UK and European economies.
Almost half of PE professionals predict the UK’s decision to leave the EU will decrease PE investment in European companies the survey said, compared to only a third that believe it will decrease investment in UK companies
Mourant Ozannes said that while about one in five EU-based GPs was considering changing the jurisdiction of fund launches in the wake of the Brexit vote, that number rose to more than 40 per cent for UK GPs.
Almost half of UK GPs and 39 per cent of European GPs revealed that their confidence in the UK regulatory environment has fallen since the Brexit vote.
Robins also highlighted LP and GP issues with Europe’s AIFMS regulation as as reason for the UK industry to take heart.
He added, “It seems that there are hopes for some relief from AIFMD regulation post-Brexit when the UK is outside the EU.
“Almost 100 per cent of respondents told us AIFMD has made raising funds from EU-based investors more challenging.
“Couple this with survey results revealing that LPs and GPs expect Brexit to result in greater investment from UK-based investors and declining investment from Europe, and it’s clear that UK private equity fund-raising will become easier in the post-Brexit environment, whilst European fund raising will remain challenging.”
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