On 23 June, the British public goes to the polls to vote on the country’s membership of the European Union, but the private equity industry has already voiced its opinion.
In a poll run by sister title Private Equity International last week, an overwhelming majority – 75 percent – of private equity practitioners voted for the UK to remain in the EU. Some 58 percent felt their businesses would be “worse off” if Britain voted to leave, a figure that rose to 67 percent among the UK-based general partners in our sample.
The data set joins an increasing body of evidence – statistical and anecdotal – that points to an industry in favour of the status quo. Earlier last week a poll by the UK private equity trade body the BVCA showed that the management at private-equity backed portfolio companies is even more stridently against a ‘Brexit’, with 78 percent saying it would have a negative impact on the British economy and 53 percent saying it would diminish their own company’s prospects.
The main issue for private fund managers if Britain decides to exit the EU is Alternative Investment Fund Managers Directive (AIFMD) passports, sister publication pfm reported.
If Britain were to exit the EU, it could result in UK fund managers becoming non-EU fund managers that do not have access to the EU marketing passport, says Sally Gibson, partner in Debevoise’s investment management group.
This in turn raises a number of questions: when would the crossover happen? At what point would fund managers stop being classed as European fund managers and move into the non-European fund manager category? And what happens if, during the crossover period, the fund manager is in the market trying to raise money from European investors?
Another regulatory conundrum that Britain faces if it decides to leave the EU, is whether it wants to be free from EU regulations or push to become part of the European Economic Area (EEA); a move that would allow Britain to benefit from being part of the EU’s single market, but would not reduce EU regulatory burdens.
While the true impact of the political decision, both in terms of AIFMD or the wider private equity markets, will not be known until after the vote, the uncertainty is already understood to be having a chilling effect on fundraising, with some LPs, according to market sources, putting new commitments to UK funds on hold until after the vote.