The UK is the most favourable environment in Europe for private equity investment, according to a new report by buyout firm Apax Partners, thanks to the hands-off approach of its government and its sophisticated capital markets. However, changes to the current tax regime could drive private equity out of the country and into less familiar territories, it warned.
In the report, Apax chief executive Martin Halusa warned that the recent political backlash against private equity could have a “pronounced impact” on the UK’s ranking in a “global and highly mobile industry”. Waning political support had already had negative implications for the environment in other European countries, he added.
The UK’s advantages as a destination for private equity investment include its lack of restrictions on private equity fund formation and operation, political support for private equity, and sophisticated capital markets. However, the uncertainty currently surrounding the tax regime is beginning to threaten its status as the best private equity environment in Europe.
Private equity partners in the UK have been widely criticised for taking advantage of loopholes in the tax regime to pay virtually no tax.
Halusa said: “The private equity model will come under even more intense scrutiny from the media, unions and politicians in years to come. For many in the industry who have worked in relative obscurity for most of their careers, this will continue to be an uncomfortable experience, but it is an inevitable part of a maturing asset class.”
Commenting on the industry’s reaction to the furore, Halusa added: “The political and media onslaught has certainly exposed a lack of preparedness and PR savvy. Most crucially, the industry has not been adequately geared up to answer critics with robust data on its overall economic and social impact.”
Halusa expressed support for the transparency drive that has been promoted by others in the industry. He said: “As owners of blue-chip companies, and as major employers, we have a duty to explain the benefits of private equity more thoroughly. To do this we need to back up our pronouncements with concrete figures.”