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UK private equity firms have sharply increased their use of offshore jurisdictions since Brexit, raising concerns about transparency as the industry pulls more money from individual investors.
British groups have invested half their money abroad in the past four years, up from almost a quarter between 2010 and 2015, with almost a third in Luxembourg. Research From the University of Glasgow.
The country has increasingly attracted the private equity industry due to its legal and regulatory environment, a trend fueled by investor demand for funds based in the EU, private equity lawyers said.
But the change has raised concerns about transparency for investors because offshore jurisdictions often require less stringent disclosures about the identity of investors behind the funds or have registries that are harder to access.
“What I see is an increasing trend for PE (firms) to use offshore jurisdictions to register their funds and their portfolio companies, which means things are less visible to the public eye,” said Paul Lavery, a finance lecturer at the University of Glasgow, who conducted the study, and a previous one had similar findings.
Lavery said the need for “transparency and availability of information” has become even more important as groups have attracted more money from retail investors.
A leading private equity lawyer said Luxembourg was a popular destination for funds before Britain left the EU because it had clear rules on the treatment of private funds, but “Brexit supercharged it” because it was easier for EU-domiciled funds to market across the bloc.
He said the momentum that had built around Luxembourg meant that many international backers of private equity funds supported it because their lawyers already understood the jurisdiction.
According to research by the University of Glasgow, around 18 per cent of all UK private equity funds established over the past four years were registered in Guernsey. The island is considered a cheaper option for smaller funds compared to Luxembourg or the UK.
Michael Moore, chief executive of industry body British Venture Capital and Private Equity Association, said Britain has a “world-leading transparency regime” and is the world’s second-largest hub of private capital.
“But these figures highlight that the UK will have to work harder to maintain this position,” he said, “Other jurisdictions are improving their legal frameworks to attract fund creation from the UK,” he said, , , And (the government) must take steps to ensure that Britain remains a world leader,
