Foreword 2017: Private Equity — Capital and Responsibility

The volume of equity capital business in Europe has increased almost a hundredfold over the past 35 years. Politicians and business leaders have recognized that providing young and also growing companies with sufficient equity capital is an important factor for the development of the economy as a whole. In 2015, private equity funds invested €47.4 billion in approximately 5,000 European companies, 86% of which were small and medium-sized enterprises. These are companies with a sales volume of up to € 50 million. This trend has been sustained over the last five years, during which a total amount of €207 billion was invested in 21,376 companies. More than 8 million employees work in companies financed with private equity in Europe.

European policymakers have recognized the positive effects of private equity and firmly embedded it in the growth-enhancing Juncker Plan of 2014.

The aim is to further increase the share of private equity, which currently amounts to 0.3% of the European gross national product, as has been achieved in the USA in recent decades, where private equity accounts for 0.9% of the US gross national product. This is partly due to the homogeneous structure of U.S. private equity legislation. It is planned to create a simplified private equity legislative framework for all EU countries as well. The goal of a European Capital Markets Union formulated by the EU Commission points in the right direction. While politicians are measured by the development of their national economy, private equity managers must demonstrate the extent to which they have succeeded in developing companies. It's about deploying the resources necessary to realize that potential. It is about the right combination of capital and the assumption of entrepreneurial responsibility.

The volume of private equity, which has grown a hundredfold over the last three decades and now stands at around US$1.5 trillion worldwide, has shown phases in which the lure of using financial engineering instruments took precedence over the duty to assume corporate responsibility.

Drexel Burnham went bankrupt in 1989 with a junk bond volume of US$1.5 billion, and its CEO went to prison for more than a decade. The volume of US$1.5 billion seems almost historically low compared to today's volumes of financial instruments buzzing around the real economic core of a national economy.