EVCA welcomes EC move to support long term private equity investment
The European Venture Capital Association (EVCA) has welcomed the publication of a Green Paper by the European Commission on how to promote private equity as a long term asset class, but adds there is much more debate and detail to be decided.
The EVCA said in a statement: “Unfortunately, much in the way of current regulation can discourage investors from allocating capital to long-term ventures. The use of current accounting standards to measure risk in long-term asset classes can also be inappropriate; artificial volatility is created in asset classes such as private equity that are designed to be held by investors until maturity.”
It added that the proposal for a Long-Term Investment Fund vehicle is “helpful but requires much work”. “While useful, this proposal should not detract from getting existing regulation right for long-term investors.”
EVCA Secretary-General Dörte Höppner noted that pension funds and insurers need access to private equity funds to help meet future liabilities.
“The economy, and the companies that drive it, need the patient capital that long-term investors can provide via private equity and venture capital firms. It is a positive development that the Green Paper recognises these challenges and the EVCA looks forward to addressing these issues in the coming months.”
“The EVCA also welcomes the specific attention given to venture capital in the Green Paper: 40% of funding for the industry now comes from the public sector. It is critical for the future of the European economy that long-term investors such as pension funds and insurance companies can also invest in the Europe’s high-growth, innovative businesses.”
Private equity and venture capital funds have invested €233bn in Europe since 2007, according to EVCA and PEREP data in 2011. European private equity firms provide financing to about 5,000 companies per year, of which 83% are Small and Medium-sized Enterprises.
Other studies have shown that private equity funds’ investments in European companies are held for about five years on average, compared to one year or less for institutional investments in public companies, and private equity backed businesses are less likely to default than other companies (3% compared to 6% during 2008-2009 recession in Europe).
A report from Ernst and Young last year found that private equity investments in large European companies improved their productivity by 7% per year.