03 Feb 2016

The Date Debate. Should Cameron opt for June or September for the EU referendum?

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Politics Insight


The formal publication yesterday of a ‘draft agreement’ – albeit a document which is hardly a final text and which has already been subject to some criticism - has heightened speculation that the essence of a deal between the UK Government and its 27 EU partners will be reached at an EU summit on 18-19 February. There is, though, clearly considerable work to be done both on the scheme which would allow individual member states to place restrictions on access to benefits for migrants from other EU member states, and on what the ‘safeguards’ for those countries that are in the EU but not part of the Eurozone will actually be in practise. There is no certainty that a deal will be struck this month. It is entirely possible that it will have to wait until the middle of March instead.

The difference between a February settlement and a March accord is, though, much more significant than it might seem. The first allows the Prime Minister a real choice of referendum dates while the second would permit him rather less flexibility. This is because the legislation that has been enacted by Parliament to permit the referendum means that 16 weeks must elapse before the date being set out to the House of Commons and the referendum actually occurring.

A mid-February deal thus would allow for either a mid to late June referendum (most probably on either 23 or 30 June if Mr Cameron wanted to ‘go early’), or for a mid-September ballot (almost certainly 15 September) if he preferred a somewhat longer campaign. If the bargain is not sealed until mid-March, however, then the earliest theoretical date would be mid-July (so almost certainly impractical because of the summer holiday season) making the mid-September plebiscite essentially the only viable option. To wait even longer than that would mean holding the referendum shortly after the Conservative Party conference (which would become an absolute blood-bath over the controversy) or deferring the vote to an even later date in the Autumn or Winter which would risk a much lower overall turnout.

Assuming that there is a February agreement what are the arguments for June and for September?

Jumping for June

The argument for the June camp is three-fold. The first is that it is better to end the political and economic uncertainty surrounding the question as soon as practical thus allowing the Government (and indeed everyone else) to return to something akin to normal political life.

The second is that the ‘Remain’ campaign is likely to receive some degree of positive movement in the opinion polls in the immediate aftermath of Mr Cameron announcing that he has achieved an outcome with his negotiations with which he is satisfied and now actively recommends continued membership.

This is because there seems to be a significant number of Conservative voters who, while they are hardly instinctive enthusiasts for the European Union, approve of Mr Cameron, tend to trust him and are willing to cast a reluctant vote in favour of remaining within the EU. The size of this contingent is, nonetheless, impossible to estimate with any accuracy and those who favour ‘cutting and running’ in June do so in part because they fear that over time this ‘Cameron effect’ will fade. Hence their support for an earlier rather than a later referendum date.

Finally, there are those who note that the migration crisis which the EU is facing tends to be at its worst during the height of summer when it is easiest for migrants to attempt to escape from the likes of Syria and that a later referendum runs the risk of being held against the backdrop of Europe being overwhelmed by refugees which might well trigger British voters to decide that the only means of keeping mass migration of this form out is by pulling up the proverbial drawbridge and pulling the UK out of the EU’s mounting migrant crisis.

Settling for September

The case for June is robust but far from overwhelming. Those who would choose September also have a number of arguments that they can mobilise in their favour. The first of these is that the referendum is likely to come down to an argument between perceived economic interests and the risks of change on the one hand, versus culture and identity on the other. To that extent the vote on EU membership is similar to that of the Scottish independence referendum of September 2014.

The first response of many electors to the issue of EU membership is to reach for culture and identity as their means of making an assessment. It is only subsequent to this that the question that they ask themselves moves on from ‘Do I like the EU?’ (answer: mostly no) to ‘Do I really want to leave it?’ (answer: probably no). A snap referendum might not allow the Remain campaign the time it needs to move the discussion from the first thoughts of the citizen to what may be their second thoughts.

A further argument for September not June concerns the alleged aforementioned ‘Cameron effect’. There is a significant contingent in the Remain campaign who suspect that voters already know what stance is he likely to take and have already priced that in to their considerations, or that the number of Pro-Cameron but basically Anti-EU Conservatives who might shift in his direction will be balanced by a no less important body of Anti-Cameron but basically not Anti-EU voters tacking the other way.

This might be especially true if the Labour Party leadership does not strike its party adherents to be making the case for staying in the EU with any notable vigour or if Labour is in a state of turmoil in June following an extremely bad outcome to the various results of the elections being undertaken in Scotland, Wales, London and other parts of England on 5 May. This could mean Labour becomes an introspective irrelevance in terms of exercising any influence over how the referendum campaign does evolve.

The final assertion for September over June is probably the strongest. It is that the mainstream party leaders will not move the Remain campaign in to top gear until after the national and local elections in May and would therefore run what in reality would be a six to eight week drive after that point. The Leave campaign, by contrast, which really does not care about exactly how many seats the SNP secures in the next Scottish Parliament, who is First Minister of Wales or the identity of the Mayor of London, will move in to full throttle from the second that the date is announced until the ballot. To opt for June is to court the risk that the Leave campaign will have already successfully set out the terms of the national debate before the Remain campaign is in a position to be fully engaged in it. Mr Cameron may find himself talking about jobs when voters have decided the issue is immigration.

Which will it be?

It is entirely possible that the Prime Minister has not decided. He may not make up his mind until he has a stronger sense of what sort of deal he can acquire on what sort of timetable and whether it is likely to be perceived as pulling a rabbit from a hat or something more humble such as a hamster. If he has determined that the arguments for June are clearly stronger than those for September then he has to strain every sinew in order to obtain his bargain by the end of this month or he simply will not have the opportunity to hold the referendum on his preferred timetable. If, as an alternative, he has calculated that September would be safer than June then his strategy over the next month could be somewhat different. He could stage a confrontation with the EU in February and walk away from those talks insisting that he must have something better before he can ask the British public to stay in the EU then acquire that something better in mid-March, defer formally announcing the date of the referendum until after the May elections with a four month campaign until 15 September. It will become obvious relatively shortly whether it will be June or September that witnesses the vote.

Tim Hames, Director General, BVCA


Sector Insight

Technology: a correction or a burst bubble?

Throughout 2015 several commentators began to show signs of increasing unease over the ever-rising valuations of technology companies, with many fearing a repeat of the 2000 dotcom bubble. With a seemingly endless procession of unicorns trotting out, there was a nervousness over whether such buoyancy could be sustained or was even healthy.

Lower than expected growth in China over the summer rocked the international markets and the tech sector has started to feel the pinch. Valuations are already taking a hit. At the World Economic Forum last month, eBay chief executive Devin Wenig said the private equity environment had “changed entirely” over the last six months, calling August a “correction”.

While some businesses, such as taxi hail company Uber, have succeeded in maintaining their hefty valuations, others have not been as fortunate. In November, Fidelity wrote down its stake in mobile phone app Snapchat by 25%, and in January it was revealed that location-sharing app Foursquare sold its shares at around half the value they achieved in 2013. That last year saw fewer tech IPOs than any year since the financial crisis seemed to confirm there was a rocky road ahead.

England pastures green

Although China’s slowdown has had a considerable impact on both the public and private markets in the UK, the outlook for tech appears more positive here than in the US. According to data from London & Partners, 2015 saw record investment by the venture capital industry, with the sector as a whole raising over £2.4 billion in funding, a 70% increase from the previous record of £1.4 billion set in 2014. London attracted most of the investment, with 63% of the total raised by UK tech companies, cementing London’s reputation as a global leader in technology and investment.

Further evidence of this is the decision of Chinese investment firm Cocoon Networks to set up a venture capital fund in London to invest in European technology companies. The £500 million fund, backed by China Equity Group and Hanxin Capital, will look to find new tech unicorns and companies that will be able to break into the Chinese markets. The diversification of risk across both the British and Chinese markets, combined with the indication that a Chinese slowdown could result in investors looking to move their money out of China, bodes well for the industry in the UK.

Does tech still have capacity?

Fears of a second tech bubble are not entirely unfounded, however. The inflation of prices and an overcrowding of the market could result in a number of companies collapsing or being significantly downsized. Yet the market is expanding and is more diverse that it was before. Industries are opening themselves up to the adoption of technology and tech has branched out much further than just computers or social media. Increased focus on areas such as fintech and the ‘on-demand’ economy are examples of this. Companies such as peer-to-peer lending service Funding Circle and restaurant food delivery service Deliveroo thrived during 2015 by tapping into a market with significant demand, forcing industries to become more efficient. It is perhaps for this reason that London is considered as a prime location to both invest and house a start-up. Its rich talent pool and positive environment for business ensures that gaps in the market will be identified and capitalised on. Contrary to fears of overvaluation and overcrowding, it appears that the tech industry is well and truly thriving.

Research Insight

The Public Market Equivalent

Since 2013 the BVCA has published an annual research piece using the Public Market Equivalent (PME) method to benchmark private equity and venture capital’s performance against the public markets. We are currently looking at ways of extending this publication by benchmarking against different indices, but in the meantime this week’s Research Insight gives some historical context by examining the relative performance of the industry in the 10 year period from 2004-2013. The piece also analyses the performance of the ‘Direct Alpha’ metric over the same period.

When these comparisons are being made, the choice of index is an important part of the process and should closely mirror the population being covered. For this piece, the FTSE All-Share Total Return Index was used because, like the BVCA database, the Index shows all returns to investors.


The graph above clearly demonstrates that while both the private equity industry and the FTSE All-Share Index have broadly followed the same trends, private equity has consistently maintained a comfortable margin of outperformance. It also shows the smoothing effect of the industry compared with the volatility of the public markets. Another point of interest in the graph can be observed during the financial crisis when the public market significantly dropped before slowly rising again. Private equity, on the other hand, experienced much less instability over the same period while also consistently outperforming.


It is important to note how consistent the industry is in terms of outperforming the public market. The graph above shows the number of percentage points by which private equity outperformed, split by funds with a vintage year older than 1996 and those that do not. Due to the fact that funds with pre-1996 vintages will have already completed their lifecycle, their level of outperformance has not changed since 2007, having stayed at 2.9 percentage points.

In the newer vintages group post-1996, the outperformance has increased, reaching a peak of 14.5 percentage points in 2008. While steadily declining since then, it firmly remained above the gap for pre-1996 vintage funds, demonstrating the strong and persistent outperformance.


Direct Alpha shows the annualised rate of outperformance of the public market. As the above graph demonstrates, private equity has consistently outperformed the market over the 10 year period from 2004-2013. The graph also shows that the rate of outperformance peaked in 2008, illustrating the gains and security investors can benefit from by having private equity in their portfolios.

All three graphs clearly demonstrate that there has been a long-standing and stable outperformance of the private equity industry compared to public markets, demonstrating the competitive advantage that investors can gain investing in the asset class. This provides strong evidence for the value added by private equity managers and their ability to do so during strong and weak economic times.


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