UK to drop outside top 5 in PE country attractiveness after Brexit

The UK will lose its status as the second most attractive destination for private equity investors after Brexit, says a business school report

Brexit is forecast to substantially lessen the attractiveness of the UK for private equity and venture capital investment, according to a report by EMLYON Business School in France and IESE Business School in Barcelona.

The second most attractive destination for private equity investors after the US, the report says the UK will likely be surpassed by Canada, Hong Kong, Japan and Singapore. The report bases its rankings on six key drivers including depth of capital market, taxation and investor protection.

The study says Brexit is already initiating a “shift of qualified staff and branches” from London to competitor cities including Amsterdam, Frankfurt and Paris and over time this will improve the deal making capacity and supporting institutions in these cities, and their attractiveness relative to London.

The Brexit scenario set out in the report is based on the assumption that the UK’s GDP growth rate in subsequent years is one percent below what it would be without Brexit; that the UK’s unemployment increases by two percent compared to what it would be and that all indicators measuring the UK’s depth of capital market receive a 20 percent haircut.

Elsewhere in Europe the study recommends investors avoid Cyprus, Slovakia and Croatia, which have all fallen down the rankings for 2018, as has Switzerland, which the authors say shows “decreasing attractiveness” and advises investors to stay cautious.

In emerging markets the BRIC countries continue to rise, with China and India improving their ranking by five and four places, respectively, with China now deemed the 18th most attractive country in the world for private equity and venture capital. Brazil is the odd country out among the BRICs, having lost 12 places over four years due to an ongoing economic crisis and growing social tensions.