PE Data Snapshot – Brexit: No Negative Impact on European PE Investing in the Medium to Long-Term

A Slim but Significant Majority of LPs and GPs Agree

Palico polled 106 investors and 179 managers – a representative subset of the nearly 17,000 LPs and GPs using Palico’s private equity fund marketplace and a microcosm of the world’s PE investing community. Intriguingly, the resulting Summer 2016 Global Private Equity Compass, which compares and contrasts the views of investors and managers, shows that a majority of both LPs and GPs believe ‘Brexit’ – Britain’s referendum-ratified exit process from the European Union – will not ‘have a materially negative impact in the medium to long-term on PE investing in Europe.’ Overall, 52 percent of investors and 54 percent of managers, polled between April 25 and May 27, see no negative impact beyond the short-term.

GPs and LPs on the UK’s Potential Exit from the European Union

After Initial Difficulty, Good Investment Opportunities will Grow for Top GPs

In the short-term, there will be write-downs of PE investments, attributable to falling values for publicly-listed comparable assets and to the pound’s sharp decline against other currencies, notably the dollar, in the second quarter. European PE-backed acquisition volume will most likely drop over coming quarters. It was already significantly off before Britain’s Brexit vote. But PE managers in continental Europe and the UK with operational expertise, experience bridging regulatory environments, and international networks should thrive as they rarely have before, as companies turn to them for help growing revenues and profits in the complex post-Brexit referendum world.

European Fundraising is Likely to Remain Strong

The opportunity to profit from advantageous pricing for assets, plus record-low interest rates, slow global growth, stock market volatility and an unprecedented number of investors increasing relative allocations to PE this year – more than two of three are upping their private equity concentrations, according to Palico’s Compass – likely means continued strong fundraising in Europe. Most of the LPs we’ve spoken with over the last 10 days who were due-diligencing European and UK opportunities in the Palico marketplace pre-Brexit vote continue to do so, drawn by what they expect will be an exceptional acquisition environment for PE that could last two to three years. Given the current economic context, they believe few other assets are as likely to deliver double-digit annual returns over the next several years.

Brexit Anxiety Among Investors is Greatest in Britain

Digging beyond the overall percentage figures for LPs and GPs on Palico’s Brexit question offers further insight regarding the expectations of different groups of investors and managers. While the split among European LPs exactly mirrors the global breakdown, a majority of UK-based LPs – 63 percent – believe Brexit will have an overall negative impact on PE investing in the medium to long-term. Britain is the European country where anxiety among investors over the consequences of Brexit is greatest.

Relatively High Numbers of US and Canadian GPs and LPs Are Optimistic

When it comes to regions, US and Canadian investors and fund managers are considerably more sanguine about the consequences of Brexit than are their Europeans peers. Some 60 percent of investors and 62 percent of managers based in the US and Canada foresee no negative consequence over the medium to long-term for European PE investing. Many North American managers and investors are skeptical that the UK will ever even leave the EU.

Debt Dependent Managers See Trouble – Growth Managers Don’t

It’s interesting to note that 52 percent of both buyout and credit & structured equity managers – representing the most debt dependent PE investors – believe Brexit will be negative in the medium to long-term. Credit quality, as well as the availability of leveraged loans for buyouts, could deteriorate for an extended period of time as a result of Brexit. Growth managers – representing the least debt dependent PE investors – are the most optimistic GPs, with 68 percent predicting no negative impact from Brexit over the medium to long-term.

Palico can Help

As managers and investors adapt to a more complex post-Brexit world, Palico, the largest online marketplace for primary, secondary and co-investment offerings, helps them do their job better. It enables members to analyze and compare opportunities efficiently and connect with the most suitable partners quickly.