Invest Europe chief: Scrutiny of PE industry is ‘natural’

The private industry's growth warrants scrutiny from media and politicians, Invest Europe chief executive Eric de Montgolfier told Private Equity International.

At a private equity conference in Cannes in January, Private Equity International heard  industry associations say the status quo on regulations should be maintained to prevent barriers to capital raising and investments between the UK and EU.

Eric de Montgolfier, Invest Europe
De Montgolfier: Diversity of industry needs to be recognised

In London this month, we sat down with Eric de Montgolfier, chief executive of industry body Invest Europe, to find out more about the association’s priorities for the next five years, what PE firms need to do more of to improve their reputation and how black swan events can cut off investment.

Have you observed an increase in anti-PE rhetoric? If so, what could the industry be doing better about its image?

We’ve seen a large amount of negative press coverage. But it’s something that we should expect because our industry has been growing for a long while now. It’s an important market, and it’s natural that our industry gets its share of scrutiny.

We don’t mind scrutiny. I think what’s important is to be transparent. There’s a notion that “private” in private equity means confidential. That’s not true. Private means unlisted and that’s completely different. We work alongside the private entrepreneurs and managers to create value and to help them manoeuvre both the tough times and good time.

The diversity of our industry also needs to be recognised as well as the role we play in creating value to society at large. What we need to do more is share that data – how many jobs we create, how many sectors we support. We need to improve the way we showcase what we do, and do it more and more – that’s expected of us.

What are Invest Europe’s policy priorities in the near-term?

First, global investment flow really needs to be protected because it’s a question of life and death for businesses. More than 50 percent of fundraising in Europe comes from the UK and out of the money they raised, 50 percent is invested in EU businesses, underscoring how interconnected we are. We need to make sure that that is maintained.

Second is to preserve the Alternative Investment Fund Managers Directive – it is not broken so there’s nothing that needs to be fixed. Now that practitioners understand how it works and what they should do under the directive, we should leave it as is. We will enter into a constructive dialogue with policymakers if amendments need to be made during the current review period.

Third is Solvency II and how changes in regulation will affect the insurance and banking industries. Those two sectors are providers of long-term capital to our industry; any negative change in weighting would have an impact, meaning investors will put less money into GPs. That’s something we are really concerned about because those regulators in general still see PE as a risky business. On the contrary, I believe that PE does not only produce very good returns but also needs to be seen as an extremely “good risk” because it provides diversification to LPs, in which they can invest in a range of strategies including buyouts, small-caps and emerging markets.

What could curtail European private equity’s growth?

Europe at the moment is going from record to record – from fundraising to deal activity – in the past five years. We are also at the forefront of ESG and responsible investment. However, we are at a high point in the cycle and at some point, we will hit a downturn. This change in macroeconomics will impact our industry as well as our portfolio companies. Black swan events like the coronavirus could also dampen economic activity and soften global demand for European products and services.

Eric de Montgolfier joined Invest Europe last year from Brussels-listed investment manager Gimv, where he was partner and head of Gimv France since 2015. He spent 11 years as co-founding managing partner and COO at Edmond de Rothschild Capital Partners and before that was founding partner of French firm Astorg.