UK policyholders of US insurance giant AIG received a fairly innocuous letter at the beginning of June noting that from now on their policies will be held with AIG in Luxembourg instead of London. It serves as a timely reminder that with the date for Brexit fast approaching, firms that have not yet started making contingencies should get busy.
So how urgent is it for private equity firms? Fund administrators tell us it can take up to six months to establish a presence in Luxembourg. Brexit is (on the current timetable) less than nine months away.
And Luxembourg is the destination of choice it seems.
A recent survey of 55 general partners by the Luxembourg Private Equity and Venture Capital Association indicated 59 percent made Luxembourg their onshore fund jurisdiction in 2018, up from 37 percent in 2016, the year of the Brexit vote. At the same time, funds registered in the UK and Channel Islands were on the losing end, decreasing to 24 percent from 33 percent.
The UK has much to lose as a home to managers. When law firm Proskauer recently surveyed 71 European buyout funds ranging in size from €100 million to €12.5 billion, 22 had their jurisdiction in England and Wales, followed by 13 in Luxembourg. Other jurisdictions noted in the survey included France, Jersey, Guernsey, the Netherlands, Sweden, Cayman Islands, Spain, Scotland and Denmark.
For those getting contingencies in place, it is nearly time to push the button, according to advisory firm BDO. The firm’s timetable suggests GPs make plans now and implement them sometime in the fourth quarter and early 2019 when parliaments from the UK and EU make a final vote on secession planned for March 29.
Brexit was – perhaps unsurprisingly – high on the agenda at Invest Europe’s CFO Forum in Lisbon last month. As well as discussions about the relative merits of Malta, Cyprus, Ireland and of course Luxembourg as alternatives to the UK, it was also clear that firms had been accelerating fundraising plans to get money raised before true instability sets in. Investors we have spoken to echo the idea any firm that can bring fundraising forward is doing so.
“The Brexit scenario is serious. Now is the time to take advantage of the benign environment,” said one chief financial officer.
PS. Nominations are now open in our sister title Private Equity International’s annual Operational Excellence Awards. They shine a light on firms doing the best job at generating outsize returns in a volatile investment environment – and leaving their portfolio companies stronger and more resilient than when they started.
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