Anna Coutts-Donald in London, and Joost Knabben and Jervis Smith in Luxembourg, weigh the findings of Vistra's recent private equity study against the broader European state of play
When examining the lie of the land in private equity (PE) in Europe over the last 12 months, there has been one dominant story - Brexit. This is hardly unexpected, as the UK's slow and tortuous (and as-yet-unfinalised) exit from the EU has actually loomed large over the bloc's political and economic landscape since 2016.
As such, it came as no surprise that in our recent research study, 'Private Equity: Where Challenges Meet Opportunities', the impact of Brexit was identified by 35% of respondents as one of the top trends shaping the PE industry.
Across Vistra's European offices, we have seen how every single PE manager has had to have a Brexit strategy in place, irrespective of the size of their fund. And the big 'winner' as a result has been Luxembourg.
Following the UK's Brexit referendum, Luxembourg was quick to market with both its Reserved Alternative Investment Fund (RAIF) and the Special Limited Partnership (SLP). The latter was effectively a 'copy and paste' of the UK limited partnership - so a lot of managers, when confronted with Brexit, opted for the Luxembourg SLP because of its familiarity and the solution it offered.
We estimate that around 90% of managers have placed business through Lux in recent years, either by fully setting up their own shop with appropriate levels of substance, or in a more hybrid formula - collaborating with service providers for both the administration of their funds and SPVs, as well as appointing an AIFM (ManCo) offered by third parties such as Vistra.
By the time of the UK's General Election in December 2019 and the subsequent agreement of the Conservative government's Brexit deal that saw the country leave the EU at the end of January 2020, the impact of Brexit in the PE space had largely played itself out. Indeed, since then, we've seen little difference across our offices, because managers and investors were prepared for it to happen. There were very few sitting on the fence.
The bigger picture
To a degree, it's been difficult to completely separate the 'Brexit Effect' from other factors that have been driving PE across Europe. The data does show, however, that PE has continued to be attractive as an alternative asset class. Figures from Private Equity International indicate that fundraising for Europe-dedicated...