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How to make money in Europe: Guy Hands

Every day there are new headlines that add to concerns about Europe's future. There is division and paralysis over how to tackle the migration crisis, damaging scandal at one of the continent's iconic companies and the growing threat of constitutional break-up. Forecasts for growth, already weak, have again been scaled back.

Europe's politicians and policy makers may appear to have a thankless task, suffering the political equivalent of the trials of Job – although it is tough to have much sympathy as many of their problems are self-inflicted. Looking at the political landscape in Europe, I can understand why investors might want to focus on markets where the outlook is less challenging.

I believe, however, such pessimism would be a badly missed opportunity but this is not because I underestimate the political and economic difficulties that Europe faces. Politically, Europe has lost its way. Public confidence in its direction and trust in its institutions is extraordinarily low. This anger is fueled by the dismal performance of the economy.

Unemployment and debt levels remain disastrously high. Action to build a solid platform for recovery was delayed. Unlike in the U.S. – and in the U.K. - the banks are still not properly recapitalized and Europe's Quantitative Easing (QE) program was far too slow to start.

The Brandenburg Gate in Berlin
Andreas Rentz | Getty Images Entertainment | Getty Images
The Brandenburg Gate in Berlin

But while I expect the short-term outlook to continue to be very uncertain, I see plenty of opportunities which at the same time as making money for my investors will also help drive recovery, growth and employment in Europe.

In fact, in many ways it is the depth and length of the slump which provides these opportunities. Terra Firma's added value has always been in turning around businesses which have been performing poorly because they have been starved of the cash or attention they need to prosper. After years of deep economic problems, there are no shortage of these businesses in Europe.

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They may have been taken over by banks in the depth of the crisis or be peripheral divisions of companies who have concentrated their efforts and investment on their core businesses. In some case, these assets belong to governments. But what they have in common is that they have been under-resourced and under-managed.

This neglect is helping hold back the European economy. By taking these assets off the hands of their reluctant owners – many of whom are now considering selling to reduce debts and release funding – their potential can finally be released.

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Turning round such under-performing businesses is not easy. It requires fresh thinking, new management and focused long-term effort. It can also need, in many cases, sizeable investment over a sustained period.

This is where, I believe, private equity has a big advantage. Freed from the restraints of quarterly reporting which require public companies continually to show their decisions are delivering instant results, we can look at what will be in the best interests of the business and investors over a much longer time frame.

This allows us the freedom to take the time to put the right strategy and the right management in place and to back them with the investment needed. Get this right and have the courage to back your judgement – and be ready to change course if necessary – then the rewards and returns can be exceptional for investors, for businesses and the wider economy.

Europe may be a long way from rediscovering its economic swagger. But I strongly believe, despite the present troubles, the best opportunities for investment now lie in Europe and that these will, in time, help the continent's economies recover their confident stride.

Guy Hands is the founder of British private equity group Terra Firma

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