Private equity lobby warns of EU decline

Europe will risk “a further relative decline in the world” if it does not remove barriers that prevent foreign groups from investing on the continent, the new head of Europe’s private equity lobby has warned.

Karsten Langer, who on Thursday becomes chairman of the European Private Equity and Venture Capital Association, called on the European Union to change regulatory rules that prevent overseas investors from deploying capital into private equity funds.

“It is dramatic to see how Europe’s foreign direct investment has fallen drastically in the past six to seven years,” the partner of US private equity group The Riverside Company told the Financial Times.

“Unless politicians are able to establish policies that attract money into Europe – including private equity and investments into entrepreneurial companies – the continent will risk a further relative decline in the world,” he warned.

His words came as Brussels is continuing to work on a number of regulatory reforms designed to put financial markets on a shorter leash, although EU officials are anxious that the pace of reform could be slowing down.

But Mr Langer said recent regulation – such as the EU directive for the alternative asset management industry and planned rule amendments for insurance companies and pension funds – hampered investment into private equity funds.

“If we make it more difficult for investors to invest into private equity funds in Europe it will make it more difficult for Europe as a whole,” said the chairman of the lobby group that represents more than 1,000 private equity and venture capital funds.

He mentioned proposals to force insurance companies and pension funds to put aside a bigger capital cushion for private equity investments than if they injected money into other asset classes. The reform plans have been a response to public anger at a sometimes excessive risk-taking in the private equity industry ahead of the credit crisis.

“It is a lack of understanding among Europe’s lawmakers that leads to such an overcautious approach,” Mr Langer countered.

“Most of us are in fact in the risk minimisation business, we spend an awful lot of time analysing the risks of a particular business.”

Mr Langer’s appeal highlights how European private equity groups are worried about a potential lack of investors for the next fund generation they are gearing up to raise. Industry executives say investors are more reluctant to give large cheques to private equity, as they have become more sceptical about the asset class and are worried about Europe’s growth prospects.

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