The level of debate and discussion so far on the EU referendum was best exemplified by the farcical scenes on the River Thames earlier this week, where a flotilla of Scottish trawlers supporting a vote to leave were met with a small group of remain supporters led by the musician-turned-philanthropist Bob Geldof.
A shouting match ensued between Geldof and UKIP leader Nigel Farage. Already the words exchanged between the two parties have been forgotten, but the images will linger of this turbulent time in British history.
The entire issue is shrouded in uncertainty. Those backing ‘Brexit’ have failed to articulate a vision of the UK should it leave the EU, while the ‘Bremainers’ have relied on the words of experts to outline a hypothetical doomsday scenario that is not convincing the general population. Polls currently show the electorate backing a vote to leave, although this has its own uncertainty as it was the pollsters that spectacularly got the British general election outcome wrong last year.
Among private debt managers, however, the view is overwhelmingly in favour of staying in the EU, although there are pockets of Brexiteers. Both sides agree that the view is uncertain and some fundraising activity has been postponed until the picture is clearer. For example, last month, Jeremy Ghose, chief executive of 3i Debt Management, told this publication that he is postponing the launch of its 16th collateralised loan obligation vehicle until the vote has taken place.
Since the Prime Minister David Cameron announced the referendum in February, the pound has taken a battering and a number of traders are betting against the currency dropping even further in the wake of a Brexit. In the upcoming issue of PDI, Tom Newberry, head of private debt at CVC Credit Partners, said that he found investors are a bit more cautious about sterling-denominated assets.
Deal flow has also dried up under the shadow of Brexit. Private equity debt advisory firm Marlborough Partners reported figures showing a major slowdown in deal flow in the first quarter of 2016 compared to the same period last year. The overall amount of leveraged loans finalised totalled €13.3 billion, more than a third down on the €21.4 billion it found in 2015.
Brexit was cited by the firm as a key reason for the deal shortfall, but so too was China’s slowing growth and the drop in oil prices at the beginning of the year. While Brexit is a key concern, it is one of many that has led to diminished activity at this point of the credit cycle.
A Brexit, however, may provide a number of distressed debt opportunities. Some in the private debt industry are perhaps licking their lips at this prospect, but some commentators say that the UK economy is able to withstand immediate shocks following a vote to leave.
The UK’s membership of the EU may be a matter that only British people can decide on, but the vote has implications around the world. US President Barack Obama and IMF President Christine Lagarde have both warned that a vote to leave will have global consequences. EU leaders have been unanimous in their support for a vote to remain, knowing that a vote to leave would embolden anti-EU movements across the continent. Many have already talked up reports of the Netherlands heading down the referendum route should the British vote to leave.
The vote is now less than a week away and we’re no closer to a picture of the UK outside the EU as the possibility of it occurring nears. Speaking to some managers, a vote to remain may provide a boost in confidence to investors and the deal pipeline may widen. But a vote to leave may see the EU project falling apart, with the Euro currency sinking like the pound and the post-war ideals of a united Europe shattered.