Constraints on the Growth of Private Equity Finance: The Emergence of Private Equity Finance in the UK and its Recovery in the US

Abstract

Private equity finance emerged in the UK at around the same time as it emerged in the US. However, PEF LBOs did not achieve the same scales in the UK in the 1980s. The main reason for this was that many of the institutional and legal changes that facilitated PEF in the US occurred later in the UK. As a result PEF in the UK was unable to solicit funds on the same scale and unable to rely on the banks and capital markets for high levels of leverage on large levels of debt. PEF LBOs remained constrained by local conditions that restricted liquidity. PEF did grow during the 1980s and did experience a reduction at the end of the decade but did not achieve the same level of notoriety that the buyout of RJR Nabisco by KKR signalled. The conditions under which this would eventually occur were not achieved in the UK until the late 1990s when many of the local liquidity constraints were addressed and the links between US and UK PEF and capital markets became more pronounced.