France’s Access Capital slashes UK exposure due to Brexit ‘nightmare’

Access Capital Partners, a French fund of funds with around €9 billion of assets under management, has reduced its exposure to UK private equity amid concerns over how Brexit will impact on certain sectors.

Commitments to UK funds account for 7-10 percent of Access Capital’s most recent flagship, the €768 million, 2016-vintage Access Capital Fund VII Growth Buy-out Europe, managing partner Philippe Poggioli told Private Equity International. This is down from as much as 25 percent in previous vintages.

The firm did not re-up with GPs that had greater exposure to gross domestic product-related sectors, Poggioli said. It has instead been “privileging” UK strategies with less correlation to the macro headwinds, such as IT, healthcare and education strategies.

“We had to basically sit out [some fundraises] just because we could already see in our portfolio that these types of companies were suffering and then the adjustment of the GP, in terms of investment strategy, was going to be one that was not going to happen overnight,” he said.

“Also there was a clear indication from the clients that they would have a problem with exposure up to 25 percent [to the] UK given what was happening. We will go back to normal on the UK probably as soon as next year, but for the moment we had to be a bit more prudent with UK exposure.”

Hard Brexit

Brexit uncertainty has already impacted UK private equity. Spending fell by one-third to €21.4 billion last year, meaning Europe’s biggest market for deal-making every year since 2011 lost its top spot to The Netherlands, according to according to CMBOR research sponsored by Equistone Partners Europe and Investec.

UK-focused fundraising was a tale of haves and have-nots last year with fewer funds raising a higher amount of capital: 11 funds closed on $7.1 billion compared with 18 funds raising $4.6 billion in 2017, according to PEI data.

London-headquartered placement agent and secondaries advisor Campbell Lutyens is working with French authorities on opening a regulated subsidiary in Paris in light of the UK’s impending exit from the EU, PEI reported on Friday.

In October, investment firm HarbourVest Partners said it would move a “substantive” number of employees to open an office in Dublin, including a number of investment professionals. Pantheon and Hermes announced in January that they were following suit.

“It doesn’t mean we will not do any UK; we are at the moment working on a re-up of a UK manager and we are considering others,” Poggioli noted.

“It’s not like we’ve basically closed the book and said the UK is over until we have more visibility; there are certain aspects of the UK market, certain strategies and GPs, who for us are totally bankable in the current market.”

Extra homework

Access Capital is not alone in adopting a more cautious approach to UK funds. In January, an unnamed German institution made a commitment to a UK first-time fund in two parts: half at first close, which is expected to happen before the Brexit deadline on 29 March, and half conditional on whether the UK secures a deal with the EU ahead of final close, according to a source with knowledge of that fundraise.

Others have increased due diligence. A senior executive at a European asset manager with more than €100 billion of AUM told PEI it had created a Brexit task force to ascertain how each of its general partners is preparing for Brexit.

The LP wants to know how exposed managers in its portfolio are to Brexit headwinds and what they are doing to mitigate these risks. Those without adequate preparations may not receive a re-up commitment in their next fundraise.

Access Capital has been “systematically” assessing how each of its GPs will be affected by Brexit since the vote in 2016 and will continue to do so as the issue evolves, Poggioli added.

“Brexit is a nightmare that started two years ago, so it’s not something that you address once,” he said. “I think you have to keep coming at it, and we will again in March.”