Charting a course through Brexit uncertainty

To say that the outcome of the UK’s referendum on European Union membership Friday morning came as a shock to those in the City of London, its financial heart, would be an understatement.

So sure was one private equity lawyer that pfm spoke to on Thursday that the populace would vote in favor of remaining, that he wouldn’t comment on what would happen if a Leave vote prevailed:

“It’s not going to happen – so no quote needed!” he wrote.

But happen it did, and as unexpected – and, for most in the financial world, unwelcome – as this result is, we are where we are. The private equity industry must rally its collective spirits and face the new world order.

The trouble is, at this moment, we are not sure exactly what that is. There are long and arduous negotiations ahead, all shrouded in an ominous cloud of uncertainty.

Invest Europe deputy chief executive Michael Collins told us Friday that the industry body’s first priority would be to ascertain the exact process ahead and the timetable for its implementation.

There is clearly much to be unpacked from a legal and regulatory perspective, and we shall endeavour to help readers make sense of developments over the coming weeks, months, and, most likely, years.

For one thing, the European private equity community is still getting to grips with the Alternative Investment Fund Managers Directive, ironing out issues with its first iteration and gearing up for the re-write. Following a Brexit, the UK’s status will eventually change to that of a third-party country, something likely to be top of mind both for negotiators in Brussels and for UK fund managers looking to return to market next year and beyond.

There’s also the possibility that some firms may choose to relocate to safer shores. MJ Hudson managing partner Eamon Devlin told pfm before Friday’s result that private equity funds have been reviewing their legal structures to see how they could move them from the UK in order to remain in the EU.

“Luxembourg will be a big gainer,” he said.

But, as any fund manager will be quick to point out, where there is adversity, there is opportunity. If the industry lobbies with energy and vigor for its needs in London and Brussels, it could find itself well positioned for the future. This is not the first time that the industry has weathered a storm; and as Gerry Murphy, chairman of Blackstone Europe and newly installed Invest Europe chair, told pfm last week, “any post-Brexit period of uncertainty will be nothing like what we went through in 2008, and our industry came through that crisis in quite good shape.”

The private equity industry has proven itself resilient and adaptable in the past. It can do so again.