How many private equity operators suitable for pension fund and other institutional investors are based in Europe? London-based placement experts Helix Associates decided to undertake a survey for some US clients anxious to pin down the potential universe. The figure Helix found was 535 firms in western Europe, if they included everybody.

We did a further survey, which eliminated some 80% of these," says Helix director Ian Simpson. A "first level of due diligence" exercise was undertaken of these firms, seeking data directly from them as well as using other sources. "One of the indicators we used was whether the operator had any American investors, if so their terms and conditions were likely to be in a market-acceptable format. Also, they will have to be quite open and transparent about how they do business," he says.

If the investors are purely local in-surance companies, banks or families, the chances are that a firm has not reached a level of sophistication acceptable to institutional investors. In France, a number of replies were received in longhand, which he thought was not a good sign.

"We reckon around 80 firms form the investible universe for institutions," says Simpson. Of these, 27 are in the UK, 17 in France, five in Germany, five in Spain, four in Sweden and a couple in Italy.

"One of the issues the industry has to address in Europe is that there is a lot of smoke and mirrors as far as returns are concerned and investors have to be very careful. You rarely see a memorandum of offer showing investment returns of less than 25%. But we know in many cases this does not hold true." The best funds are frank about their mistakes and their performance, he says.

Simpson summaries the markets: In France be suspicious of track records claiming over 30 to 35%, many players' returns are "in their teens"; Germany is "a 20 to 25% market"; Sweden has four excellent firms, with returns in the 50 to 125% range - "they are very clean in how they present their results"; Italy's top tier firms have generated returns in the 60 to 80% bracket; in Spain the best firm was around 30%; in the UK it varied with the type of the deal, with the best returns in the large buy-out sector ranging from 40 to 60% in the 1990s.

According to Simpson, the risk in private equity is not of losing capital, but that the returns ending up being at bond level.The key to choosing markets is whether industrial restructuring is occurring, as it has been in the UK, Italy and Scandinavia and where this is likely to continue. These are also the countries with most em-phasis on shareholder value. "France and Germany have barely scratched the surface."

Because of the current valuations for buy outs which have been the target of a number of recent funds, Simpson suggests investing in companies "just under this radar screen". The companies should be big enough to be floated or to attract a multinational buyer, but too small for the attentions of the buy-out funds.

His tip for successful private equity investing: "The investors who will do best are those who place a consistent amount year after year and take time to chose the best managers. There is no reason why they will not achieve areturn of 500 or 1,000 basis points more than the quoted market. If they get these returns year after year, they should be happy." Fennell Betson"