Private equity funds ‘face much tougher challenges than Trump and Brexit’

Private equity funds ‘face much tougher challenges than Trump and Brexit’

The risks posed to the UK private equity industry by recent political events have been grossly exaggerated, according to Matthew Hudson, chief executive of MJ Hudson, the alternative assets consultancy.

Hudson sees the emergence of passive private equity funds and the trillion-user base of large retail platforms, such as Snap and Facebook, as potentially the greatest threat to the traditional private equity fund manager.

Speaking at SuperReturn International in Berlin, the world’s largest private equity event, he dismissed concerns around Trump’s election and the Brexit vote, arguing that investors should look to both the US and the UK to buy assets.

”The UK and US news is out there – uncertainty is the enemy, really,” he said.
In response to a remark that UK assets faced risk that was not yet priced in, he added: “With steady predicted growth and a 15 per cent currency discount, UK assets look pretty cheap to me.”

Explaining his bullish prognosis, Hudson said: “In 2016 a cocktail of risks were discussed – political risks; regulatory risk; underlying growth risks – but in 2017 we are starting to see other risks emerge: dry powder risk; vintage risk; ‘sitting-on-your-hands-risk’.”
As the discussion on Brexit and the future of the industry turned to other trends on the horizon, Hudson urged private equity fund managers and investors to prepare for the possibility of a seismic shift in the longer term. He warned that the continued retail interest in passive investing and the increasing financial user power of some digital platforms could lead to private equity ETFs gaining market share and outbidding traditional financial sponsors on deals.

“There is a risk that we will see a strong challenge to the private equity fund as we know it,” he added.