Fund activity on pause across EU, but hopes of relief from AIFMD on UK horizon as general partners admit fundraising has been challenging
Widespread delays to fund launches across Europe immediately followed the UK’s vote to leave the European Union, yet the outlook for the private equity industry remains optimistic, according to research released today by law firm Mourant Ozannes.
The research, which targeted more than 260 limited partners (LPs) and general partners (GPs) across the world, also reveals that PE professionals expect an increase in UK-based institutional investment, compared with the EU post-Brexit.
Ben Robins, Jersey-based Funds Partner at Mourant Ozannes, said: "It seems 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 limited and general partners 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."
Key statistics
• More than two thirds (69 per cent) of UK GPs and half (50 per cent) of EU GPs (excluding the UK) deferred fund launches following the Brexit vote.
• Almost nine in 10 (88 per cent) private equity professionals globally are positive about the PE outlook over the next 12 months, a figure that increases to 93 per cent among those based in the UK.
• Almost half (47 per cent) of PE professionals predict the UK’s decision to leave the EU will decrease PE investment in European companies, compared to only a third (33 per cent) that believe it will decrease investment in UK companies.
• 96 per cent of GPs globally have found it more challenging to raise funds from EU investors since the introduction of AIFMD.
• Almost half (45 per cent) of PE professionals expect to see an increase in investment coming from UK institutional investors.
Delayed but not deterred
The study, commissioned by Mourant Ozannes in August 2016, is based on interviews with 260 GPs and LPs from North America, Europe and Asia. It reveals that immediately following the EU referendum vote, half (50 per cent) of EU-based GPs (excluding the UK) deferred fund launches, with more than two fifths (44 per cent) considering doing so.
In the UK, more than two thirds (69 per cent) of GPs were deferring launches, with almost a fifth (19 per cent) considering doing so.
The Brexit vote is also spurring the EU PE community to reflect on the most suitable fund locations. Almost one in five (17 per cent) of EU-based GPs are considering changing the jurisdiction of fund launches, due to uncertainty around regulation and tax. This is even higher among UK GPs (41 per cent).
Almost half (47 per cent) of UK GPs and 39 per cent of European GPs also revealed that their confidence in the UK regulatory environment has fallen since the Brexit vote.
This is also visible on the other side of the Channel, with a third (33 per cent) of European GPs and 38 per cent of UK GPs reporting a decrease in regulatory confidence in the EU following the referendum vote.
Ben Robins, Funds Partner at Mourant Ozannes Jersey, 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.”
Global PE outlook upbeat
Despite many EU-based GPs putting investment activity on hold following the Brexit vote, sentiment across the private equity industry globally has remained upbeat.
Across the world, almost nine in 10 (88 per cent) PE professionals are positive about the outlook for the private equity market over the next 12 months. This actually increases to 93 per cent among UK-based PE professionals, the largest proportion globally.
The study also reveals that the impact of the Brexit vote could weigh heavier on European private equity investment than the UK’s. Although a third (33 per cent) of private equity professionals globally believe the Brexit vote will decrease investment in UK companies, two fifths (41 per cent) are predicting an increase in UK investment, with the rest expecting no effect.
In contrast, almost half (47 per cent) of private equity professionals believe the recent Brexit vote will decrease private equity investment in European companies - 14 per cent more than those that believe the UK will be negatively impacted.
In fact, when it comes to investment flows coming from UK based institutional investors, almost half (45 per cent) of PE professionals globally expect to see an increase in investment, while 19 per cent don’t anticipate any effect.
It is PE professionals in North America who are most positive – 61 per cent of GPs and LPs based in this region expect to see additional investment coming from UK investors following the Brexit vote.