pfm sat down with Tim Hames, the British Private Equity & Venture Capital Association’s director general, to discuss UK private equity’s reaction to Theresa May’s Brexit strategy. Speaking a week after the Prime Minister’s January speech, he talks about why now is a peculiar time to be a fund manager, jurisdictions vying for funds’ attention, and the three things at the center of a fund manager’s mind.
How is Theresa May’s Brexit strategy going to affect PE in the UK?
Well, I think it’s very early to say. Following Theresa May’s speech, having a sense of the direction of travel is a good thing.
There are three big concerns for fund managers following May’s speech. The first is access to capital, or “What will investors think?”, with reference to Brexit. Are LPs going to be warier of investing with UK private equity firms?
The second is access to people, and this has two points to it. The first is fund managers hiring within firms themselves. Are they going to be able to hire clever people from within the EU? The second point is the pipeline of entrepreneurs seeking investment for their businesses. Are they going to be put off because investment will be difficult to get following Brexit? Or they may feel they are less welcome in the UK, and the general atmosphere being less inviting.
A third point here I suppose, is the access to mass labour. Our members invest quite a lot in the food and hospitality sectors. Those kinds of businesses often have people working in them who are not from the UK, so the knock on effect of that from a fund manager’s perspective is also a concern.
Will competition to domicile funds increase between jurisdictions?
With regard to the Channel Islands, I’m quite relaxed about funds domiciling in Guernsey or Jersey. There are great benefits to domiciling there, including the detailed understanding of the industry amongst the people there, the English language is the lingua franca. The proximity to the UK is another. That is in comparison to the Cayman Islands for instance, where places like that have a reputation for being chosen for their tax-planning benefits primarily. I suppose there is an element of competition between jurisdictions, but I don’t sense that it is particularly strong. We of course are a third country now, or will be as a non-EU state, so there will be considerations on how we attract funds to set up here.
How have BVCA members reacted to Brexit generally?
I think UK fund managers have been pragmatic about the situation, particularly as there’s nothing they can do about it personally. There were some initial shocks in the US on the general stock markets, but the serious negative impact that was discussed before the referendum hasn’t really come about.
Now we know that Brexit is going to be at the firmer end of the spectrum, fund managers are perhaps thinking about how this will affect individual deals. Fund managers will be looking at whether a deal is more exposed to UK consumer markets, compared with more EU or international exposure for example. This is what I mean by Brexit being disruptive, but at random.
What’s the fund manager outlook for 2017?
In terms of uniform concerns, it is hard to call where we are in the cycle. Fundraising is difficult at any time, but UK private equity firms have had a successful year in raising funds. I think the bigger question is that fund managers have not got a suitable comparison for this point in time. Never before have we lived through a time when interest rates have been so low for so long, for example. The post-Brexit environment is characterised by a balance between uncertainty and volatility. Many fund managers are scratching their heads thinking “I’m not sure what I’m supposed to be comparing this time to.”