Buyers should heed Brexit FX risk

Brexit could bring portfolios to market but buyers need to hedge against the risk they pose, according to panelists at PEI's Women in Private Equity Forum.

Brexit could bring some portfolios to market, though buyers should be wary of the risk that sterling-denominated assets represent.

Speaking on the secondaries panel at Private Equity International‘s Women in Private Equity forum in London, Evelyn Zhang, vice-president in the private equity team at Partners Group, said that while the UK’s departure from the EU should have a limited impact on their investment and fundraising activity, the volatility of the pound has affected the way it scrutinises assets.

“Obviously, that volatility will have an impact when you’re doing diligence on a portfolio where, for example, a pound-denominated asset is part of the net asset value,” she said. “Does it impact on the pricing of the entire portfolio? Do you want to consider how you can hedge away part of that FX risk?”

Valerie Handal, managing director in the secondaries team at HarbourVest Partners, said that in addition to foreign exchange risk, the firm is carefully considering the impact that tariffs could have on UK exporters and how an economic shock could affect companies that trade domestically.

“You need to take that into account in your investment analysis and frankly raise the risk bar, which we’d do in any jurisdiction where there’s uncertainty,” she said. “It doesn’t mean there won’t be good opportunities.  Just after Brexit, some LPs said that they were no longer so interested in investing in the UK and there have been enquiries around UK portfolios. This will create opportunities as well.”

“Anytime there’s a market dislocation or the market has jitters, people look for liquidity,” added Laura Shen, partner at direct secondaries specialist Headway Capital. “I think it could very well generate additional investment opportunities.”

The panel was chaired by Sunaina Sinha, managing partner of advisory firm Cebile Capital, and also featured Catherine Badour, head of investor relations at Hollyport Capital.