Brexit to hit private equity investments in Europe harder

The U.K. vote to leave the European Union has caused widespread delays to fund launches across Europe, but the outlook for the private equity industry overall remains optimistic, according to research released by offshore law firm Mourant Ozannes.

Almost half of all private equity professionals expect to see an increase in investment coming from U.K.-based institutional investors.

The survey of 190 general partners and limited partners from Europe and Asia, as well as 70 PE fund managers and investors from North America, shows that immediately after the EU referendum more than two thirds (69 percent) of general partners in the U.K. deferred launches and almost a fifth are considering it. In comparison, half of EU-based managers, excluding the U.K., deferred fund launches, with another 44 percent considering a delay.

Almost half of all U.K.-based GPs (41 percent) deliberated changing the jurisdiction of their fund launch, compared to 17 percent of EU-based private equity managers, due to uncertainty around regulation and tax.

Trust in the regulatory regime on both sides of the Channel is also waning, with 47 percent of U.K. GPs and 39 percent of European GPs stating that their confidence in the U.K. regulatory environment has fallen since the Brexit vote. The figure is somewhat lower, albeit still high, concerning the European regulatory framework.

Nevertheless, investors and managers are expecting European private equity investment will be hit harder in a post-Brexit environment than that in the U.K.

More private equity professionals (47 percent) believe Brexit will decrease private equity investment in European companies, compared to only a third (33 percent) who believe it will decrease investment in U.K. companies.

Likewise, general partners reported uniformly that they have found it more challenging to raise funds from EU-based investors since the introduction of the EU Alternative Investment Fund Managers Directive.

Globally the sentiment in the industry is more upbeat, however.

“We operate in a global economy and so Brexit is inevitably going to have a ripple effect internationally,” said Alex Last, Funds partner at Mourant Ozannes in the Cayman Islands. “That said, from what we are seeing in the Cayman Islands, private equity activity on both the fund formation and deal side remains strong in the U.S. market. A number of clients are looking at Brexit as a buying opportunity in the U.K. given the relative weakness of sterling. As a global offshore law firm with a specialist focus on private equity, we are excited about the year ahead.”

Almost 9 in 10 (88 percent) private equity professionals worldwide expressed a positive outlook on the private equity market over the next 12 months. The figure is even higher (93 percent) among U.K.-based survey respondents.

Almost half of all private equity professionals expect to see an increase in investment coming from U.K.-based institutional investors. PE professionals in North America are the most positive, with 61 percent expecting to see additional investment coming from U.K. investors following the Brexit vote.

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