Focus Report on Regulation - Going through a seismic shift - Ogier
Focus Report on Regulation - Going through a seismic shift - Ogier
Focus Report on Regulation - Going through a seismic shift - Ogier
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IV <str<strong>on</strong>g>Focus</str<strong>on</strong>g> report: Sp<strong>on</strong>sored Article<br />
September<br />
24, 2012<br />
Europe’s markets have had<br />
a torrid few years but while<br />
many investors have run<br />
for the exits, others have<br />
recognised the moment<br />
to be a major buying<br />
opportunity. For foreign<br />
private equity managers<br />
looking to invest in Europe,<br />
the Channel Islands provide<br />
a tried and tested route,<br />
write Jane Pearce, Group<br />
Director of <strong>Ogier</strong> Fund<br />
Services<br />
and Tim<br />
Morgan,<br />
Partner of<br />
<strong>Ogier</strong> in<br />
Jersey<br />
A Haven for<br />
an Industry<br />
Under Siege<br />
Feature Article<br />
Sp<strong>on</strong>sored by<br />
Despite the c<strong>on</strong>stant stream of negative news from<br />
Europe, the unrelenting threat of downgrades from<br />
the rating agencies, the attenti<strong>on</strong> of the IMF and<br />
social unrest, Europe remains an attractive place for<br />
internati<strong>on</strong>al investors.<br />
The single biggest reas<strong>on</strong> for this is valuati<strong>on</strong>s:<br />
markets are often known to overshoot <strong>on</strong> bad news,<br />
and there has been plenty of bad news to overshoot in<br />
Europe. After years of pummelling in the equity markets,<br />
valuati<strong>on</strong>s in Europe now look cheap and private equity<br />
managers with an eye for an opportunity are moving in<br />
to pick up companies that could look real bargains <strong>on</strong>ce<br />
sentiment turns.<br />
Private equity has proved to be a safe haven for<br />
internati<strong>on</strong>al investors and c<strong>on</strong>tinues to perform<br />
str<strong>on</strong>gly. This combined with the relative strength of<br />
the U.S. dollar against currencies, provides U.S. dollar<br />
investors with an opportunity to diversify their portfolios<br />
to include U.K. and European assets.<br />
Analysis of price-to-earnings ratios either side of the<br />
Atlantic support this claim. European price-to-earnings<br />
ratios are about 75% of U.S. ratios. Relative valuati<strong>on</strong><br />
over the decade has oscillated between 60% 130%.<br />
The Preqin All private Equity Index showed<br />
that private equity as a whole had c<strong>on</strong>siderably<br />
outperformed the S&P500 index since the 2007<br />
fi nancial crisis. Preqin further reported that “the majority<br />
of LPs expect returns in excess of 400 basis points over<br />
the public markets”. With Europe selling at a discount<br />
from the U.S., historical patterns suggest that so<strong>on</strong>er<br />
or later, it will outperform its American counterpart,<br />
diminishing the valuati<strong>on</strong> gap.<br />
Add in the funding crisis and regulatory tightening<br />
of capital adequacy requirements for European banks<br />
and it is likely that some existing leveraged structures<br />
will be sold at a discount to intrinsic value. As European<br />
banks c<strong>on</strong>tinue to be under pressure to shrink their<br />
balance sheets, well-funded purchasers with access<br />
to equity or debt fi nance will be well placed to take<br />
advantage of opportunities in the U.K. and Europe.<br />
This all suggests that managers willing to take a<br />
l<strong>on</strong>g-term view, who are able to ride out some short<br />
term volatility, should be – and are – looking at Europe.<br />
Having taken that decisi<strong>on</strong>, the questi<strong>on</strong> is how to<br />
structure the fund to ensure the best blend of effi ciency<br />
and protecti<strong>on</strong>.<br />
N<strong>on</strong>-European managers looking at Europe will be<br />
struck by the Alternative Investment Fund Manager<br />
By basing a fund in the Channel<br />
Islands a manager can c<strong>on</strong>tinue to be<br />
regulated with the light touch, pre-AIFMD<br />
regulati<strong>on</strong> bey<strong>on</strong>d 2013, and perhaps<br />
until 2018