European Update

With a road map out of the Covid crisis (at least in the UK), worldwide roll out of a vaccination programme and with the prospect of strong growth, asset managers will be looking at the opportunities presented by the post-pandemic landscape.  They will also be navigating a number of current and regulatory changes in part driven by the post Brexit environment as well as pervading current regulatory and disclosure themes such as ESG.  

In the UK, HM Treasury has published a call for input on its review of the UK funds regime which, recognising the importance of the asset management industry to the UK economy,  focusses on identifying options designed to make the UK a more attractive location to set up, manage and administer funds.  Our tax partner, Michael Alliston discusses further below.  

The UK is not alone in reviewing the regulation and tax treatment of its funds industry and Martin Krause discusses below the German government’s draft bill designed to make a number of improvements to the fund establishment regime in Germany.

Fundraising activity for listed funds has been relatively strong in the first quarter of 2021, reflective of the generally buoyant stock market conditions and at both secondary and primary levels, albeit that we have seen a few IPOs delayed or pulled. In general, the funds IPO market remains active but success for new issuers is not guaranteed.  The focus remains, much as it has been for the last five or more years on the alternative assets that are capable of producing secure and consistent dividend yields, although we are also seeing increasing interest in funds targeting certain new technologies and technology infrastructure.   

Cordiant Digital Infrastructure Limited recently raised £370m in conjunction with a listing on the Specialist Funds Segment for investment into operating digital infrastructure assets, focuses on data centres, mobile telecommunications/broadcast towers and fibre-optic network assets in the UK, Europe and North America.

In February, VH Global Sustainable Energy Opportunities plc raised £242 million on its Main Market IPO.  The investment objective of this fund is to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of global sustainable energy infrastructure assets.  NextEnergy Capital also announced a planned £300m raise that month for a renewables investment trust that will invest in private funds run by both its investment manager and third-party firms as well as make co-investments and direct acquisitions of infrastructure projects.  This IPO has currently been postponed.

In December 2020, Tortoise Ecofin launched the Ecofin US Renewables Infrastructure Trust PLC raising $125 million.  This fund acquired a seed portfolio of solar projects serving utility and commercial off-takers in three US states shortly after its listing.  London continues to be become popular for such listings because of the relative efficiency of raising capital and the access to a wide pool of knowledgeable investors with appetite for the asset class.  

We have also seen the Main Market listing of alternatives manager, Foresight Group Holdings. The company, which manages £6.8bn of assets and 292 infrastructure assets and 104 private equity investments on behalf of 33 investment vehicles, was valued at approximately £460 million on IPO. 

There have also been a number of secondary raises by existing listed funds, including The Renewables Infrastructure Group’s March raise, attracting approximately £240m from both existing and new investors to support the growth of its portfolio of renewable infrastructure assets.

Industry sentiment for private fund fundraisings in 2021 appears strong.  There has been considerable recent activity with both new and existing managers raising new capital. Some example include US manager, Vision Ridge Partners which is focussed on sustainable real assets, closing its $1.25 billion Sustainable Asset Fund III. Kartesia, a European specialist provider of capital solutions for small and mid-sized companies, has closed its first senior debt fund, Kartesia Senior Opportunities (KSO) I at EUR1 billion.  The general mood of optimism is reflected in the private equity industry as a whole.  According to a recent survey by S&P Global Market Intelligence, against a backdrop of the worldwide rollout of vaccination programmes, the new U.S. presidency, and the conclusion of Brexit, PE investors are demonstrating a bullish outlook for the industry. The report stated that likely, this relatively optimistic dynamic will continue over the next 12 months and despite ongoing economic uncertainty, on average, 68% of survey respondents believed investment activity will improve in 2021.

As we begin to navigate the post COVID-19 environment I’m pleased to report that Josh Tod has joined us as a partner within the Investment Funds Team at Norton Rose Fulbright. Josh’s practice primarily focusses on private fund formation for private equity, credit, infrastructure and real estate fund sponsors. Primarily working with mid-market sponsors, Josh regularly advises on the structuring, marketing and operation of private funds co-investments alongside private funds and fund subscription credit facilities. He represents fund managers, financial institutions and investors.