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Big Trouble for British Buyouts

Private equity investors say they have little appetite for buyout funds in Brexit Britain, eyeing opportunities, instead, on the continent.

The U.K. is perceived to be the most unattractive region in Europe for private equity buyouts, according to a survey of investor intentions.

The winter 2017 edition of Coller Capital’s Global Private Equity Barometer polled 110 investors across North America, Europe, and the Asia Pacific region, and found 44 percent of investors believed that they U.K. is “becoming less attractive” for buyout opportunities.

Investors are responding to increasingly gloomy reports about the future of the British economy as it prepares to leave the European Union in March 2019. Last month, the Organization for Economic Co-operation and Development (OECD) released its outlook for the next two years, which included a warning that the U.K. economy would likely weaken as inflation begins to bite and businesses cut back on recruitment.

Monday’s survey comes a week after a Financial Times report which said investors have been demanding that private equity funds restrict U.K. investments to 30 percent of assets, due to ongoing uncertainty relating to Brexit. 

Notably, the Coller Capital report found investors had an appetite for mainland Europe, with 43 percent of respondents saying it is becoming more attractive for buyout markets. 

Germany, Austria, and Switzerland were classified as one region in the report. These three countries were considered as “becoming more attractive” by 34 percent of respondents, marginally ahead of Italy, which 30 percent of respondents said was becoming more appealing. 

When asked about attitudes towards alternative assets more broadly, 59 percent of European investors said they would be increasing allocations to alternatives over the coming 12 months, but hedge funds remain out of favor. Four in ten respondents claimed they would be cutting allocations, while just six percent said they would be adding exposure to hedge funds. 

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By comparison, European appetite for infrastructure assets was substantial, with 61 percent of investors stating they would be increasing allocations here and just three percent planning cuts. 

Outside of Europe, there was a degree of regional divergence among investors when asked where the most attractive private equity opportunities would come from in the coming two years. 

Spin offs and disposals from major corporations were considered to be the most likely source of attractive investment opportunities in North America, according to 72 percent of respondents. But, in Europe and Asia, the majority of investors believed that entrepreneurs and families will be the source of the most attractive opportunities, with 67 percent of those polled saying this would be the case in Europe and 74 percent for Asia Pacific. 

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