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Pension fund interest in private equity rises 26%

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EUROPE - Private equity firms in Europe raised a record sum of €112bn in 2006, an increase of 56.4% from the year before, and pension funds contributed more than ever to this growth.

Over one-quarter (27.1%) of the capital raised by various private equity funds came from pension funds compared to 24.8% in 2005, according to final year-end statistics by the European Private Equity and Venture Capital Association EVCA.

With €29.2bn invested in private equity in 2006, compared with €16.8bn in 2005, pension funds are the largest investor group - an increase of 26% - followed by fund of funds which contributed €19.6bn in assets and banks with €15.5bn.

Private equity funds reported a record investment of €71bn, up 51.2% from 2005, in over 7,500 European companies. Yet nearly 90% of those employed less than 500 people and one-third (33%) was invested in the UK, while 15% of assets went to French firms, 10% was in Germany and 8% was invested in companies in the Netherlands.

Over 28% of the money in European private equity funds came from the US, followed by UK investors with 21% and France (7.9%).

And since 1980, the funds have posted an average annualised return of 10.8%.

Released figures on the private equity market follow recent Europe-wide opposition to the growth of private equity ownership of companies.

At the same time, the UK's Financial Services Authority (FSA) has said it will enhance "regulatory reporting requirements for private equity firms to incorporate information on committed capital in addition to existing requirement to report drawn down capital".

In a feedback report to its private equity discussion paper issued in November, the FSA said responses confirmed "the current approach to supervising this market is broadly appropriate".

The FSA also said it will hold a bi-annual survey on banks' exposure to leverage buyouts.

According to the regulatory authority, the main regulatory risks with private equity companies are the prospect of market abuse and conflicts of interest.

However, the FSA noted it "views private equity as an important and growing part of a dynamic and efficient capital market".

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