Why London is number one for the private equity industry

A new report has revealed that the UK is the top choice for buy-out groups, so we asked some of the capital’s private equity experts why

The UK is seen as the best place to set up private equity businesses ahead of the US and Switzerland, according to a new report by Investec Fund Finance. The UK’s top position flies in the face of slow economic growth and a swathe of bad press around the sector.

We reported earlier this week that London is no longer the leading city in Europe for mergers and acquisitions. The UK is ranked third place after France and Germany, dropping two places compared with last year where it ranked number one.

But according to the latest research the UK outperforms other countries when it comes to infrastructure, tax regime and regulatory environment making it the most attractive spot for private equity companies.

The UK, London in particular, has traditionally been private equity’s main hub in Europe.  It holds the headquarters for a huge portion of European groups as well as the EU offices for the largest US buy-out firms.

Whilst the sector is not without its problems (four-fifths of the managers polled warned that the sector needed to do more to improve its image following the crisis at Southern Cross) it remains a global powerhouse for the private equity industry.

We asked two of London’s top private equity professionals why they think the UK consistently comes out on top and what needs to be done to maintain the title.

Howard Leigh, senior partner, Cavendish Corporate Finance

“The UK currency has encouraged investment here as opposed to Europe. If you invest in the UK you are generally borrowing in sterling and the rates are therefore cheaper than anywhere else. It makes perfect economic sense.

“We also have more flexible labour markets. I spoke with a gentleman from India recently who had been looking to set up in Europe. He thought the UK was particularly good on employment law compared with the rest of Europe.

“We also have the English language as well as political and economic stability.

“To maintain this we need to keep ourselves away from EU regulation as best we can. We also need to make sure we have a government that is committed to helping business, which I believe we do have right now.

“In terms of the reputation of private equity, I think it has had a good ride in the UK and despite recent bad press, the spotlight is moving away from private equity and concentrating instead on PFI (private finance initiative). The BVCA (British Venture Capital Association) has done a great job of calming people down and showing that private equity creates jobs.”

Charlie Johnstone, director, ECI Partners

“London attracts global talent. You just need to walk down the street to see just how international a place it is. We also have a historically strong environment for supporting entrepreneurs which gives us the right ingredients.

“To continue with our position at the top we need to make sure that global talent isn’t put off or stopped from coming here and continue to support entrepreneurs in what they do.

“As an industry we need to be able to communicate. The Southern Cross media coverage wasn’t a debate based on facts and private equity took the blame.”

Simon Hamilton, head of Investec Fund Finance

“Despite continued concern around the reputation of the UK’s private equity industry, this research highlights its strength and resilience in the face of tough overseas competition.

“However, the government must do all that it can to nurture and support the sector to ensure that the UK remains a hub for private equity firms.” 

Most competitive locations for private equity firms:

1. UK

2. USA

3. Switzerland

4. Luxembourg

5. Channel Islands and Isle of Man

6. Scandinavia

7. Netherlands

8. France

9. Germany

September 2011: Investec research

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