Suddenly, Europe is awash in funds topping $1bn". The headline, taken from the December edition of American Private Equity Analyst neatly summarises what has been a remarkable year for the European private equity market. In the last few months of 1997 no fewer than eight funds closed, having raised more than $1bn to invest in European private equity; all but one were UK-based. The only downside was that nearly half of the money raised came from the US.

European funds are only just coming to appreciate the return potential of private equity. 1997 was not just the year of big fund raising but also the year that performance measurement of private equity came of age in Europe. The WM Company, in conjunction with the British Venture Capital Association, produced the first set of meaningful (and good) statistics. In both cases the UK led the way. However, when it comes to exposure to private equity, UK pension funds are not setting the pace. There is an amazing difference between the investment attitude of US pension funds and their European counterparts. But things are changing, led by some of the largest funds, especially in the Netherlands. Both ABP and PGGM have now made substantial commitments to the sector. Some investments are quite large, for example Pensioenfonds PGGM recently allocated $100m to invest alongside a $500m fund raised by San Francisco-based Horsley Bridge, with ABP one of the investors in the actual fund.

What happened last year was a real change of attitude, according to Simon Thornton of BC Partners. "Historically, very few funds had a formal allocation to private equity, now more and more have a formal policy and a specific allocation to the sector," he says. In the UK the old Coal Board pension schemes were long seen as the leading pension fund investors in the sector, then its Cinven subsidiary itself became a management buy-out. The reinvented Cinven has become one of the leading players, looking after the pension funds of the railways industry as well as the coal industry and other funds. Other UK funds now seen as leading the way in investment in the sector include the Merseyside and West Midlands pension funds, and the British Aerospace, Halifax and Unilever pension funds.

However, the real secret to raising funds, especially in the UK, is through contact with what have quite accurately become known as the gatekeepers. These are firms appointed sometimes to vet, often to take, private equity investment decisions on behalf of pension funds. Their importance has been underlined by differing interpretations of the UK's Financial Services Act, which says that a fund should be regulated if it takes day-to-day investment decisions. The question therefore is whether the investment in a private equity fund is effectively the appointment of an investment manager, which does not need to be regulated or the selection of an investment that does. As funds do not want to be unnecessarily regulated the answer is important!

Trevor Cook is managing director of Specialist Pension Services in Welwyn"