Behind the Brexit bravado

Our post-referendum poll reveals that beyond the brave faces most GPs are putting on, Brexit is causing real concern.

In the three weeks since Britain's shock decision to leave the EU, fund managers have been rushing to reassure investors – and their peers in the market – that, while the outcome is not what they wished for, it is business as usual.

But Private Equity International 's post-Brexit poll, which took the temperature of the industry in light of this momentous decision, has revealed that although fund managers might appear to be maintaining a stiff upper lip, behind the scenes Brexit is causing real disquiet.

More than 300 industry participants shared their views with us, of which around 90 were general partners. Of those, more than 35 percent said Brexit would have a negative impact on their business, and 50 percent said their investment activity has slowed either somewhat or dramatically.

The effect is starker among fund managers within the EU (excluding the UK). Just 26 percent think the referendum result will be a positive, while 47 percent view it as negative.

Unsurprisingly, Brexit is causing the biggest headache for UK GPs; 43 percent say it will have a negative effect, and just 5 percent see it as a positive.

Half of UK respondents chose Brexit as their top macro concern, and it's clear why: 57 percent say it has either somewhat or dramatically slowed investment activity , and 55 percent say fundraising will be negatively impacted in some way.

But there are those that are celebrating. More US fund managers see Brexit as a positive rather than a negative, while half of GP respondents in the rest of the world think Brexit will have a positive effect on their business.

And it stands to reason: for non-sterling or euro-denominated funds, Brexit presents a buying opportunity. The recent acquisition of Terra Firma-owned Odeon and UCI is a case in point. Buyer AMC's chief executive Adam Aron said that, while Brexit threw up uncertainties, the company was “encouraged that current currency rates are highly favourable to AMC with the pound falling to a three-decade low versus the dollar”.

A low pound coupled with low interest rates presents a “golden opportunity” for overseas investors, Florin Vasvari, a private equity-focused professor at London Business School, told us earlier this week.

“You don't need to be an expert. If the pound is trading at a 30-year low relative to the dollar, that tells you that the pound is undervalued. It's obvious to me this is the time to bring money into the UK. Buy pounds: you'll be making 10 percent on the currency alone.”

There is also a clear opportunity for secondaries players, with almost one in 10 LP respondents saying they are considering selling stakes in UK-focused funds .

David Schoch, principal at European mid-market fund of funds Akina, which runs primary, secondaries and co-investment programmes, told PEI that, having already “substantially” cut back on its UK exposure  in Q1, “we have come to the conclusion that we will see more opportunity than downside: particularly in the secondaries market”. Post referendum, the firm has already noted sellers reducing price expectations “foremost in portfolio situations with significant UK or sterling exposure,” he said.

Whether the impact is positive or negative, the poll makes it clear that for the majority of firms out there, it is not business as usual in this post-Brexit world – as much as some may wish to protest otherwise.

PS. Want to highlight an exceptional deal that proves your firm's operational prowess in these uncertain times? Enter our fifth annual Operational Excellence Awards, which celebrate those firms that have gone that extra mile to bring true value to their portfolio companies. Entries close on 12 August.