Industry reacts to Brexit vote

Uncertainty prevails as the private funds industry tries to make sense of the implications of UK’s decision to leave the EU.

This morning the UK woke up to the news that the public has voted – by a margin of 2 percent – to leave the European Union following 43 years of membership.

The result of the referendum was not what the private funds industry wanted; 75 percent of the individuals in private equity were in favor of a vote for Remain, according to a poll sister tile Private Equity International ran in March. More than two-thirds of UK-based GPs felt their businesses would be worse of if Britain voted to leave.

In early trading this morning, sterling was down 6 percent against the euro and fell to levels against the dollar not seen since 1985.

Compiled below are some of the industry's comments on the immediate impact of the UK's vote to leave the EU on investors.

The Association of the Luxembourg Fund Industry, said:

“The impact of this vote will be dependent on future political decisions and trade negotiations and, in order to avoid uncertainty and to ensure that investors continue to be as protected as they are under EU regulation, it is essential that the period for negotiation is not prolonged and that a level playing field is maintained.”

Jonny Myers, global head of private equity at law firm Clifford Chance, said:

“There could be considerable implications for private equity portfolio companies. In the short term, while there will be no immediate change to the UK's legal relationship with the EU or the rest of the world, uncertainty itself is likely to induce volatility in the financial markets. The longer term implications are harder to predict at this stage as they depend largely on the model that would form the basis of the UK's ongoing relationship with the EU.”

David Bailey, director of marketing and communications at private equity and real estate administrator Augentius, said:

“Brexit will of course have an effect on both the UK and European private equity and real estate industries. But we should be careful not to overstate its likely impact. It's just one of many changes and challenges the industry is currently going through. It may be the case that UK managers will need to create slightly more complex structures to accommodate the new relationship, but as the second largest economy in Europe, UK funds and their underlying investments will remain an attractive destination for European money.”

Matt Huggett, partner at law firm Allen & Overy said:

“The regulator has already started asking asset and fund managers how they will be affected by Brexit and probing on contingency plans. In the coming weeks and months, this will have to be a significant area of focus. Asset and fund managers will want to start significant lobbying efforts, to make sure that their needs are front and centre when the Government begins to negotiate with the EU as regards the terms of an exit.

Matthew Hose, equity analyst at investment bank Jefferies said:

“Although a workable solution was reached for AIFMD, and hopes have been raised that investment companies will not automatically fall foul of the 'complex' product definition under MiFID II, the Brexit vote will inevitably introduce a renewed bout of uncertainty to the regulation of investment companies. This is particularly on the latter directive, given the question on whether it will continue to be implemented. Furthermore, while Brexit could ultimately be used to reverse the requirements under AIFMD, the immediate path is far from clear.

Colin Stirling from the UK private equity team at law firm Squire Patton Boggs, said:

“We are likely to see a lot of owner managers and private equity houses sitting on their hands for several months whilst they get used to the idea, and look for signs of where the country is heading.”

Lord Goldsmith QC, London co-managing partner at law firm Debevoise & Plimpton, said:

“The practicalities of what happens next are complex, and will be shaped by the unfolding developments in the economic and political spheres… However, we can be certain that the regulatory and legal implications will be significant. The environment in which businesses operate in the here and in Europe is going to fundamentally change as EU and UK law is unpicked, and new patterns are established. Business leaders and their advisers across sectors should be prepared to adapt to this fast-changing environm ent.”

Guy Grainger, chief executive officer at investment management firm JLL, said of the real estate market:

“Investor sentiment may […] remain subdued in the short to medium term, although a drop in Sterling may provide a moment in time for some opportunistic international investors. For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised. Sentiment and relative pricing will be key.”