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UK private equity firms have sharply increased their use of offshore jurisdictions since Brexit, raising concerns about transparency just as the industry is pulling in more money from individual investors.
British groups set up half of their funds abroad over the past four years, up from around a quarter between 2010 and 2015, with about a third in Luxembourg, according to research from the University of Glasgow.
The country has increasingly attracted the private equity industry because of its legal and regulatory environment, a trend that private equity lawyers said had grown because of investor demand for funds that are based in the EU.
But the shift has raised concerns about transparency for investors as offshore regions often require less stringent disclosure about the identity of investors behind funds or have registries that are harder to access.
“What I see is an increasing tendency for PE [firms] to use offshore jurisdictions for registering 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 with similar findings.
Lavery said the need for “transparency and availability of information” had become even more important as the groups attracted more money from retail investors.
A leading private equity lawyer said Luxembourg had been a popular destination for funds before the UK left the EU because it had clear regulations on the treatment of private funds, but “Brexit supercharged it” because funds domiciled in the EU were easier to market across the bloc.
Momentum that had built around Luxembourg meant that many international backers of private equity funds favoured it because their lawyers already understood the jurisdiction, they added.
About 18 per cent of all UK private equity funds set up over the past four years were registered in Guernsey, according to the University of Glasgow research. The island is considered as a cheaper option for smaller funds compared with Luxembourg or the UK.
Michael Moore, chief executive of industry body the British Venture Capital and Private Equity Association, said the UK had a “world-leading transparency regime” and was the second-largest private capital hub in the world.
“But these figures underline that the UK must work hard to retain this status,’’ he added. “Other jurisdictions have been reforming their legal frameworks to attract fund formation from the UK . . . and [the] government should take steps to ensure that Britain remains a world leader.”
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