London shines in BVCA report

London’s position as the centre of European private equity was confirmed by the results of the BVCA’s 2007 Report on Investment Activity published at the end of June.

“The story of private equity in London is that it is the centre of expertise for private equity investment in Continental Europe,” says Ashley Coups from PricewaterhouseCoopers, which produced the report in association with the BVCA.

Investment in Continental Europe by BVCA members, which includes the vast majority of private equity and venture capital assets managed in the UK, rose from £4.2bn in 2005 to £14bn in 2007. The substantial increase was partly thanks to the inclusion of new BVCA members, including several large buyout houses.

BVCA chief executive Simon Walker said the results demonstrated that the UK was “the gateway to the whole of Europe and the most important centre for the private equity industry outside the US”, adding that it was the BVCA’s ambition to make London the global capital of private equity.

Walker praised BVCA members for their willingness to respond to the survey, which recorded a 100% response rate for the fifth year running. Coups called the survey “the most comprehensive country-specific survey on private equity in the world”.

Surprisingly, the story of 2007 in the UK was not the game of two halves that many thought it would be. The liquidity difficulties that started in the middle of the year did not significantly impact the volume of deals in the latter half – activity was split equally between the first and second halves of the year.

In terms of the size of transactions completed, the first half of 2007 was so buoyant that overall there were 84 deals of more than £100m, up from 55 the year before.

The sum invested in the UK also rose from 2005’s figure of £6.8bn to £12bn last year. Member firms invested £31.6bn in total, up from £21.9bn in 2006, representing a 45% increase. An increase in BVCA membership accounted for 8% of this rise.

“At the moment, the strong returns generated by UK private equity are mostly benefiting North American pensioners,” Walker said referring to the fact that 41% of total funds raised by member firms are from North American-based limited partners.

“It is surprising that UK pension funds don’t provide a larger proportion of the amount invested in UK private equity funds, especially given their excellent access to GPs in London and the 20.1% 10-year returns private equity has made,” added Coups.

In the absence of a pick-up in activity in Q3 and Q4 this year, 2008’s report is unlikely to be as robust as 2007’s. With the UK’s position as the capital of European private equity firmly secured, it should now work on becoming the gateway to global private equity investing.