E&Y: US hottest country for PE/VC investments

Factors including taxation levels, depth of capital markets and corporate governance make the US, UK and Canada most attractive for investment, according to a recent study.

The United States, Canada and the UK are the top three most attractive countries for private equity and venture capital investing, according to an index created by Ernst & Young and the IESE Business School at the Universidad de Navarra in Spain.

The index ranks a total of 66 countries spanning six continents on a criteria list of six principles, including system of taxation, economic activity, depth of capital markets, investor protection and corporate governance, human and social environment and entreprenurial culture and opportunities. The index uses data starting in 2000.

Poland's increasing attractiveness can be traced to its accession to the [European Union], as well as the expansion of capital markets.

Alexander Groh

The US was ranked first because “the entrepreneurial spirit and culture in the US society … remains a critical factor,” Heinrich Liechtenstein, IESE professor, said in a statement. “This mentality leads to greater innovation, employment and, in the end, prosperity.”

The goal of the index is to help investors determine the best countries to place their money.

“As LPs consider where to allocate their capital, and private equity and venture capital funds look to make the right investments themselves, the investing landscape will continue to evolve,” John Harley, global private equity leader at Ernst & Young, said. “There will undoubtedly be comparative winners and losers.”

The index shows that some emerging economies are making strides in opening up their economies to private investment.

China, Poland and India all ranked relatively high on the index, according to the authors, with China placing at 28, Poland at 31 and India at 38.

“China's high ranking stems in great part from political economic decisions, while Poland's increasing attractiveness can be traced to its accession to the [European Union], as well as the expansion of capital markets through the establishment and development of the Warsaw Stock Exchange,” Alexander Groh, a visiting professor with IESE, said in the statement.

China has increasingly become a favoured area of established US private equity firms. David Rubenstein, co-founder of private equity mega-firm The Carlyle Group, speaking during a conference in Beijing in November, called China “the most attractive emerging market in the world” and “probably the most attractive market in the world”.

Carlyle raised $1.04 billion in June for its Carlyle Asia Growth Partners IV fund. The Blackstone Group opened Blackstone (China) Equity Investment Management Company in November to manage the firm's first region RMB fund, Blackstone (China) Equity Investment Fund. Blackstone signed a joint venture with the Pudong government to raise up to RMB5 billion for its first RMB fund.

Norwest Venture Partners collected $1.2 billion for its eleventh fund that will focus a portion of its investments in China and India.

A former Carlyle senior advisor, Ryszard Wojtkowski, is raising a €200 million private equity fund to invest in the Polish mid-market. Carlyle closed its Warsaw-based operations in November 2008 to cut costs after establishing the Poland team a year earlier. The firm is called Resource Partners and comprises six members of the former Carlyle team.