Trade negotiations fear for UK funds

There is concern over the turbulent Brexit negotiations and the prospect of no trade deal being struck with the EU, Capital Structure Forum delegates heard.

With an SME fund dedicated to the UK, Paul Shea, co-founder of Beechbrook Capital, told PDI’s Capital Structure Forum he was troubled by the prospect of a possible recession caused by an inability for the UK to strike a trade deal with the rest of Europe.

Shea also said the issue of passporting and the ability to market funds to European investors was a major issue. “Most of our investors are European so from our point of view that needs to be addressed, and we have got until March 2019 to prepare,” he said.

However, he also found reasons to be optimistic: “Ninety five percent of UK SMEs don’t trade with the EU but have to comply with all the directives. We need directives that are better suited, together with less and more appropriate regulation. Employment is high in the UK at the moment and inflation is not too high so there are plenty of reasons to be positive.”

Stuart Fiertz, co-founder and president of Cheyne Capital, said the UK could take steps to make itself more competitive. “You could, for example, launch an onshore alternative investment fund and lots of offshore fund administration could come back onshore and increase employment and take-up of office space.” He said he had something like a RAIF (Reserved Alternative Investment Fund) in mind.

Fiertz added that, on the real estate side, “the impact [of Brexit] has already been felt and the worst already factored in” and that “contingency planning for us relates to having an asset manager outside the UK so you can continue to originate loans [across the region].”

Fiertz also said he thought Brexit “could give the EU impetus for fiscal uniformity, which could be a benefit. On the UK side, developing an industrial strategy is a good start, together with the focus on how to fund SMEs and infrastructure. There is a political focus on how to ensure economic stability and that is good news for us.”

“The biggest issue to investing in the UK is currency,” said Deborah Zurkow, head of alternatives at Allianz Global Investors. “We have lots of funds in the UK. Investors want diversification and to go where the opportunities are. None of our investors say they won’t continue to look at opportunities here.”

“The dynamism of the UK means that this will remain one of the most interesting places to invest,” concluded Fiertz. “In the wake of the Brexit vote Japanese investors pulled back because of what they were hearing on the automotive side, while US investors saw it as an opportunity – but no one saw it as a fatal blow. There are political issues all over the world so the UK is not standing out as an impossible place to invest.”

A poll of delegates at the Forum found that 47 percent of those present expected Brexit to have a negative impact on their firms, while 21 percent thought it would have a positive impact, 30 percent no impact and 2 percent a very negative impact.