Brexit will not spur LP stake sales – survey

Almost all LPs who responded to PEI's Brexit survey said they were not considering selling stakes in UK or Europe-focused funds.

Britain’s decision to leave the EU will not lead to an increase in secondaries sales involving UK and Europe-focused funds, according to a global survey by sister publication Private Equity International.

Almost 90 percent of limited partners said they were not considering selling stakes in UK-focused vehicles as a result of Brexit, according to PEI‘s survey which sought views of more than 300 private equity professionals.

Europe-focused funds fared similarly, with almost 95 percent of LPs saying they were not thinking of disposing of those interests either.

“The secondaries market does not react to the short term,” Thomas Meyer, co-founder and partner at Luxembourg-based LDS Partners which advises LPs and GPs on risk management, told Secondaries Investor. Identifying sellers, finding buyers, coming up with a reasonable price and executing a transaction is not something that can be done quickly, Meyer said.

“It takes quite a lot of time so it’s not the [kind of] trading environment where from one day to another you start to panic and find somebody who’s going to buy [your stake].”

Deal volume in the secondaries market during the first half of this year is expected to be lower than the same period in 2015, with one London-based source telling Secondaries Investor buyers are deal-hungry with bigger funds being raised and fewer opportunities to deploy capital.

While deployment pressure may be building for buyers, LPs should conduct thorough analysis of their portfolios before decided to sell any stakes, according to Javier Echarri, a managing partner at LDS.

“There is no over-arching reason why portfolios will do badly in this kind of uncertain period, or even a contraction period or a weak pound versus euro period,” Echarri said.

LPs should be cautious not to sell positions in funds managed by GPs who have weathered previous contraction periods well, as such managers should be able to find value, he added.

“You want to review the rest of your portfolio and see whether it holds water or not [before selling].”