I recently addressed the 10th China International Finance Forum, a group of influential policymakers and investors, in Shanghai. I took the opportunity to explain how investment in Europe can deliver direct benefits to China and Europe.
Chinese investors are looking abroad for attractive investment opportunities to create value and long-term returns. Europe can answer that demand.
That’s the message I gave in Shanghai and the EVCA will be explaining that again in Tokyo and Seoul at the EVCA Investors Seminar (If you are an EVCA member and want to meet leading institutional investors in Korea and Japan click here).
The European Union – as a single market – is the biggest economic bloc in the world with 26% of global GDP. Its population and GDP are larger than that of the USA. Through the European Union, we have a successfully functioning single market and a stable regulatory and political environment. In short, Europe is a great place to found and grow a business.
Local private equity managers have decades of experience navigating Europe’s hugely diverse pool of companies to identify opportunities. Over the last five years to the end of 2012, European private equity managers have invested €270 billion into 22,000 European private companies.
But, after the financial crisis, Europe is short of long term investment capital, which it needs to build more great companies.
The European economy is not suddenly going to get better overnight but private equity investors are in it for the long-term and when things do get better –as they will – their businesses will be in pole position to benefit. That will meet their investors’ need to generate strong returns in a low yield environment.
Now is the perfect time to do what private equity does – invest wisely, add value, and build better, sustainable and ultimately more valuable businesses.
I told the delegates in Shanghai that investing in European private equity could help both Europe and China.
How? Long term capital wisely invested through venture capital and private equity funds can support growing companies, which in turn can help the European economy return to health, and provide the foundations for a successful exit environment, which will deliver the strong returns on investment that patient institutional investors, like the ones in China, require.
Things are already getting better – the economic crisis in Europe has largely been overcome in the major economies of the UK, Germany and the Nordic countries. The International Monetary Fund global outlook forecast now expects Greece, Italy, Portugal and Spain to exit recession and begin growing in 2014. Ireland has already resumed upward growth, albeit slowly. Confidence is returning and that confidence is anchored in the quality and values that Europe offer.
In 1992 Germany undertook a painful reunification process that brought economic hardship to the country for several years but by 2000, after the political and economic transformation, Germany emerged much, much stronger. In my opinion a similar process is happening right now across the EU.
If I am right, and the indications suggest I am, then Europe may be emerging back into growth faster than you may think. And that’s an opportunity that investors all over the world should not miss.