EUROPE/UK - Private equity allocations among UK and European investors are still too low, according to research from Standard Life Investments.
The private equity market is relatively new in Europe. US institutions with an exposure to private equity have approximately 7.5% of total assets allocated while in Europe the comparable figure is just 3.6%.
Jonny Maxwell, chief executive of private equity at SLI, which manages some E1.8bn in the asset class, said that there is strong evidence showing that private equity can significantly outperform listed equities.
“Over the last 10 years or so, investments in European private equity produced a return of around 5% higher than the comparable listed equity indices. In addition, there is evidence that top performing private equity managers out-performed the average manager by over 10%, thereby emphasising the crucial importance of manager selection,” he said.
Investors cited a high risk profile and a lack of liquidity as reasons not to invest in private equity.
Maxwell added: “A common myth persists that private equity is very risky, but this is partly because many investors associate it with venture capital which is at the risky end of the spectrum. Risk can be controlled by spreading the allocation across sectors and managers or by using a fund of funds.
“Lack of liquidity is also put forward as a reason. While it is true that it can be difficult or costly to liquidate an investment if the investor’s needs change, there is increasing efficiency in the private equity secondary market as well as other avenues.”
Figures from the European Private Equity and Venture Capital Association (EVCA) show a plunge in total private equity fundraising levels from E38bn in 2001 to about E19bn last year. This has led to renewed calls from the association for member states to harmonise tax and legal policies in a bid to encourage industry growth.
According to the EVCA, the UK and Ireland has the most favourable regulatory environment and Denmark and Austria the worst.
Observers have long commented that tax and regulation are acting as a drag across Europe and creating a disadvantage when compared to the US and Asia.
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