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PE Panorama: Brexit prompts move away from the UK for PE investors

By Paul Mackintosh   
January 27, 2017

With stupidity and prejudice still rampant at Westminster, it appears that some private equity (PE) smart money has decided it’s had enough and is seeking more intelligent climes. The Financial Times has reported that the Blackstone Group (Blackstone) and the Carlyle Group (Carlyle) are both applying for European Union (EU) fund marketing passporting rights, with a view to moving their European fundraising operations to Luxembourg. The possibility of the UK losing its UCITS (Undertakings for Collective Investment in Transferable Securities) and AIFMD (Alternative Investment Fund Managers Directive) fund passporting entitlements has already raised alarms in the fund management sector. PE groups, which fall broadly under the same fund passporting rules, are apparently joining the exodus.

Of course, they may have decided that an impoverished, devastated post-Brexit UK will have no money available to put into private equity funds anyway, but more likely, they simply welcome the chance to remain in a contiguous multinational market such as the one the UK has had the folly to leave. According to subsequent reporting from Bloomberg, both Blackstone and Carlyle are looking at the move to establish an alternative fundraising access point, rather than to exit the UK entirely. Luxembourg appears to be especially attractive in light of its fundraising capabilities and infrastructure, with all the requisite services for such a platform already in place. Incoming firms that have not yet established a European fundraising base meanwhile, may well now opt for Luxembourg in the first place, instead of setting up a London fundraising capability. Yes, that does mean that London will lose out on their business. But didn’t someone already tell Theresa May that this might happen…?

More interesting, could be the future fate of homegrown PE investors like Permira. Will the Brexit hyenas bay at them if they decide to follow Blackstone and Carlyle and move their fundraising operations to Luxembourg too? They may feel more tempted to stay. After all, Terra Firma Capital Partners Chairman, Guy Hands, has already told Bloomberg that Brexit will see a drop of up to 30% in UK wages, but this will mean good deals and good business for private equity firms that do stay on. Most of the investment opportunities, admittedly, will be bankruptcies triggered by the stress of Brexit, but at least that creates targets for buyout investors, no matter what it does to the economy at large. Maybe they could buy the British government? The old, unreconstructed version is clearly intellectually bankrupt, and in dire need of some overhaul and modernisation… and intelligent management.