The UK may have voted to leave the EU in June 2016 but, in the almost three years since, little progress has been made towards the country’s exit. As politicians continue to wrestle with the biggest challenge they have perhaps ever faced, there is speculation that the public will be asked to vote again in a second referendum.

For private debt managers active in the UK, one would assume this has all been rather damaging. Once seen as a relatively safe haven for capital, the country has long been the hub of the private debt asset class in Europe. The Alternative Lender Deal Tracker survey, produced by Deloitte, typically shows the country accounting for around 30-40 percent of the total number of deals done across the continent.

But have investors begun to lose faith in the UK? There has been a decline since 2016 in capital targeting UK-only strategies. Sources we have spoken to say investors within the EU have pulled back from UK funds, though some hope that this reflects a wait-and-see attitude.

Rather than any definitive verdict that the UK is a bad place to invest, European LPs may be biding their time until more clarity emerges around the political situation.

Not all doom and gloom

Although appetite for the UK may have declined it certainly hasn’t dried up. We hear that demand for both UK-only funds and European funds with a UK element continues to be reasonably strong, and particularly from LPs based in northern Europe, the US and Canada.

Moreover, even the more cautious mainland European investors may be edging their way back into the UK again. “We are starting to see some interest from them,” says Paul Shea, co-founder of London-based GP Beechbrook Capital, which has both pan-European and UK-focused funds. “Is that because they have allocations they need to use up? Is it because the Brexit effect has not been as bad as predicted so far and the UK is actually doing OK? I don’t know, but they are certainly showing more interest now than six to 12 months ago.”

Moreover, Shea says his firm is not in the business of “buying the market”. Instead, it focuses on building highly selective portfolios of SME credits that are more exposed to micro- than macro-economic factors. This approach, he insists, mitigates the vagaries of the UK’s ongoing Brexit muddle.