Brexit Drama Scares Off Biggest Nordic Private Equity Fund EQT

Brexit: Why are Markets Relaxed but Equity Funds Scared?
  • EQT’s von Koch says Europe’s potential is underestimated
  • Donald Trump presidency a realistic possibility: von Koch

EQT Partners AB, the biggest private equity fund in the Nordic region, says it’s steering clear of Britain as the country prepares to hold a vote on its European Union membership.

"Our industry hates uncertainty and we haven’t opened a fund there since the vote was announced,” Thomas von Koch, EQT’s managing partner, said in an interview on Monday at the firm’s Stockholm headquarters. “The U.K. is on ice for us."

Thomas von Koch.
Thomas von Koch.
Photographer: Ruth Corke/EQT

Though most polls indicate the U.K. will probably stay in the EU after the June 23 vote, EQT is preparing for the worst, von Koch said. The fund doesn’t have any equity investments in Britain, but owns debt from U.K. companies through its credit fund, the 50-year-old managing partner said.

The threat of a so-called Brexit is already prompting some companies to shelve initial public offerings that would have targeted London. Both the International Monetary Fund and the Organization for Economic Cooperation and Development have warned Britain against leaving the EU amid concern an exit would cause financial shocks beyond the U.K.

Bloomberg’s latest poll of polls shows the "leave" camp at about 41 percent, compared with 48 percent for “remain,” but calculates an 82 percent probability the U.K. will still be an EU member after the June referendum.

Should Britons defy the polls and vote to leave, it’s worth noting that Ireland would suddenly become the last English-speaking country in the EU, von Koch said. Luxembourg would also stand to benefit, he said.

"I think the Irish and the Luxembourg people have the champagne cooling. They are clearly the winners," von Koch said. "I sincerely believe it would be a very stupid decision for the Brits, because it’s going to hurt."

Investors face a universe in which two -- once unthinkable -- events may become reality. One is Brexit, the other is a President Donald Trump, von Koch said. An ABC News/Washington Post poll published on Monday showed Trump getting 46 percent support, compared with 43 percent who would back Hillary Clinton.

"People are sitting on the bench, waiting to see if Brexit happens and Trump becomes president,” von Koch said. “It’s an interesting world that causes lots of uncertainty."

The U.K. government issued its starkest warning yet about the dangers of a vote to leave the EU in next month’s referendum, saying it risks causing a yearlong recession, sparking a decline in the pound and costing the loss of about half a million jobs. The pound is already down about 5 percent against the euro this year.

Leaving behind the "noise" of the Brexit vote and the possibility of a Trump presidency, the underlying strength of Europe is "underestimated," von Koch said. He held up France, Italy and Spain as countries that investors would do well to look at more closely.

EQT has raised about 29 billion euros ($32.5 billion) in capital spread over 18 funds since being founded in 1994. EQT invests in equity, infrastructure and credit. It is expected to soon start a technology growth fund to broaden its appeal to investors.

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