A Comparative Examination if Private Equity in the United States and Europe: Accounting for the Past and Predicting the Future of European Private Equity

Private equity has transformed from a small asset class into a major player in the global economy. Despite being a U.S. invention, the private equity model has also managed to spread throughout Europe. Recently, the spotlight has been put on the private equity industry for a number of reasons: the recent financial crisis; the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act in the U.S. and the Alternative Investment Fund Managers Directive in the E.U.; and the run of Mitt Romney, founder of the prestigious U.S. private equity firm Bain Capital, for President of the United States. Despite this attention, a comparative examination of private equity regulation is absent from academic literature.

This paper seeks to fill that gap and offers a comparative assessment of the legal framework governing private equity firms and transactions in both Europe and the U.S. This comparative examination will reveal that Europe has a particularly restrictive legal environment, which one would assume would inhibit European private equity activity and cause it to substantially lag behind the U.S. Nonetheless, underlying economic forces have provided and continue to provide a boost to the European market, allowing Europe to compete with the U.S. on an equal footing. Unraveling these underlying economic forces shall be the other major goal of this paper. When it comes to European private equity, there is no causation between the strictness of the legal regime and economic development. Rather, economic development shapes its own path and is unaffected by the prevailing legal regime.