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 Private Equity International this 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 votes to leave, a figure that rose to 67 percent among the UK-based general partners in our sample.
Our data set joins an increasing body of evidence – statistical and anecdotal – that points to an industry in favour of the status quo. Earlier this 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.
In what some might interpret as a guarded endorsement of the survey’s findings, the BVCA’s Tim Hames said it was “particularly interesting” that such a high proportion support the UK’s continued EU membership.
One does not have to think too deeply to understand why the industry is leaning this way. From a portfolio company perspective, it is the straightforward economic argument – as controversially highlighted by Bank of England Governor Mark Carney this week – that has to be “front and centre”. The fear of financial instability and its effect on the UK economy looms large for UK business.
Lawyers have been busy considering the regulatory impact of “Brexit” from a fund formation and marketing perspective. Would, for example, fund managers in a Britain that has voted to leave the EU be considered non-EU managers, and hence forfeit their EU marketing passport? The question is a pressing one for those managers currently in the market.
While discussion of the referendum’s impact remains theoretical, two real world impacts are starting to be felt.
The first is currency volatility. The British pound, which has lost ground against the US dollar since December, will be subject to bouts of weakness until June, say currency experts. A weakened pound makes the UK a more enticing hunting ground for global firms scouting for deals. Or as one GP recently put it to PEI: “Whether you are tourist or a private equity firm with US dollars, the UK currently looks like a good destination.”
The second is a chill on fundraising activity. With the referendum only three months away, we are hearing anecdotal reports of LPs putting new commitments to UK funds on hold until after the vote. With this in mind, it is clear why GPs are keen to get back to “business as usual”.