LPs shy away from UK post-Brexit

Despite recent bullish commitments, not all LPs have a positive outlook in the wake of the UK’s decision to leave the European Union.

Sister publication Private Equity International’s post-Brexit poll reveals that more than 55 percent think Brexit will have a negative impact on their business.

The survey garnered responses from more than 300 industry insiders, 44 of which identified themselves as limited partners.

LP respondents globally singled out Brexit as their biggest concern by far, followed jointly by the prospect of a Donald Trump presidency and negative interest rates.

While the majority of LPs said Brexit would not have an effect on their allocation to alternatives, it will influence their behaviour when it comes to direct investing. More than 20 percent said they would be moving away from direct investing in the UK, while 12 percent see Brexit as an opportunity to seek out more target companies there.

For the most part, Europe-focused funds appear to be insulated, with only 16 percent of LPs responding that their allocations to such funds would decrease going forward.

However, the picture for UK-focused managers is not so rosy; more than 40 percent of LP respondents said they would decrease their commitments to UK-focused funds, with a mere 6 percent planning to up their commitments. Almost one in 10 is considering selling stakes in UK-focused funds.

The outlook was even bleaker among UK-based LPs, 72 percent of whom said Brexit would have a negative impact. Half chose Brexit as their biggest macro concern, with regulation a distant second, and 36 percent said they would be decreasing their commitments to Europe-focused funds. Almost 65 percent said they would be decreasing commitments to UK focused funds, and 27 percent are considering selling stakes in UK focused funds on the secondaries market.

The survey’s findings counter recent activity by investors such as the Tennessee Consolidated Retirement System, which committed €200 million to BC European Capital X the day after the Brexit vote.

According to a spokeswoman the US public pension took Brexit into account when considering the commitment, but moved forward anyway in light of the lack of pressure for BC Partners to deploy capital amid uncertainty, given the fund’s five- to six-year investment horizon, as well as the potential to deploy capital in a riskier environment offering lower entry prices.