LSE launches Euronext rival

Kimberly Romaine
06 November 2007

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London's newest fund listing venue will be a hot spot on the private equity scene. By 1 November, when the new Specialist Fund Market launches, nearly every UK fund manager will have at least considered the advantages of a listing, according to several major advisers. "It has become part of the landscape," says Justin Dolling of law firm Kirkland & Ellis. He indicates that managers are now focusing on the possibility and how it could be advantageous to their business. "People are asking about it now. They are asking 'should we list an entire fund, a feeder fund or part of our management company?'. People have certainly become very aware of it. In the end, it won't suit every fund manager, but most will at least consider the possibilities," Dolling adds.

And whereas Amsterdam Euronext has attracted the big guys, the success thus far means others are keen to get in on the action, whatever their size. "They don't need to be huge vehicles," Dolling says, "It seems to appeal to smaller buyout houses too." However, the costs involved mean that it's unlikely to suit a fund under the £100m mark, according to Christopher Field of Kirkland & Ellis. Under this level they'd consider AIM, but in the past that market has proved less attractive for bigger funds. "US clients always ask about AIM because they hear it is cheap, flexible and doesn't require a prospectus. But it quickly disappears as an option as fund managers realise it lacks the deeper liquidity and profile of the main market," says Field.

Venture capital trusts (VCTs), a UK government incentive to promote innovation, have used the AIM market for fundraising for years. The small size and regulatory requirements means the VCTs are aimed at the retail universe, though at least one VCT manager was tempted by the new Specialist Fund Market: "I wonder whether we could get the existing VCTs re-listed on this exchange, which could help liquidity for shareholders." He goes on to suggest that several VCT fund managers could merge their funds in due course to reach the £100m mark.

Naturally there are those who feel the new market will further the criticisms that private equity is becoming short-termist. "This new market might encourage short-term decision making, counter to the philosophy of private equity," one small buyout manager notes. "I would have thought that most of the investors who would and should participate in this market would already have access to private equity funds directly, but this structure would help their liquidity and also require more transparency from the funds themselves."

Background

The launch comes on the back of the announcement last week by the UK's Financial Services Authority (FSA) stating that from early next year, alternative investment funds would no longer be able to utilise a secondary listing regime (Chapter 14) under the FSA's new unified regime. The London Stock Exchange (LSE) has created this market to comply with the European Union's consolidated admissions and reporting directive. It is intended to bridge the gap between the LSE's main market and its Alternative Investment Market.