At a presentation in Milan, the founder and chief executive of French asset manager BDL Capital Management delivered a blunt assessment of the forces reshaping Europe's public equity markets. The first slide in the presentation depicted a blue turkey with yellow stars bearing the European Union flag - a visual shorthand for what the speaker described as a troubling trajectory for regional capital markets.
Hughes Beuzelin, whose firm manages 3.5 billion euros in assets and pursues an active public equities strategy, said Europe needs to rebuild its stock markets. "Were completely crazy in Europe ... We need to speak to regulators, their agenda is driving us into a wall," he told the audience, calling into question current regulatory priorities.
Beuzelin argued that the growth of index-tracking passive funds has eclipsed active management in U.S. equities and that this shift can produce inefficient allocations of investor capital. Because many passive vehicles follow U.S. or global indexes, he said, the dominance of passive investing in Europe effectively exports European savings to U.S. companies.
Rising geopolitical tensions and cooling transatlantic relations have made the movement of EU savings into U.S. markets an issue of political and regulatory concern, Beuzelin added, noting the flow of capital as a focal point for authorities within the bloc.
The BDL chief highlighted market structure factors that have depleted cash available to European exchanges. He pointed to a shortage of new share offerings and a wave of delistings as drivers of cash outflow from local bourses. Those trends, he said, combined with higher liquidity and valuations in the United States, are encouraging companies to list there instead.
On the relative merits of public and private markets, Beuzelin said public equity remains a more democratic investment vehicle: "I think that public equity is better, not perfect, but everyone can invest in public equity while private equity is for the happy few." He added that private equity, which was once a useful avenue, has become overcrowded: "Private equity was good at the beginning but now there are too many funds ... and they are overpaying for the businesses they buy."
Beuzelin further criticised passive investing for amplifying market momentum: money flows into assets whose prices are already rising, reinforcing those price moves. He pointed to sectoral effects as evidence of this dynamic, saying valuations are high in European banks and in the defence sector, while sectors such as beverages exhibit lower relative valuations.
The presentation and remarks reflect concerns from an active manager about structural shifts in capital allocation across geographies, market segments and sectors. They also underline the tension between regulatory aims and market outcomes as seen by one European asset manager. For reference, the speaker provided an exchange-rate conversion of $1 = 0.8361 euros.
Summary
BDL Capital Management's founder warned that current regulatory approaches and the rise of passive investing are weakening European public markets and steering savings toward U.S. companies. He pointed to fewer IPOs, increased delistings and private equity proliferation as contributing factors, and identified sectoral valuation imbalances driven by market momentum.
- Key points
- Regulatory policies in Europe are, according to BDL's CEO, prompting harmful market outcomes and should be revisited to support domestic equity markets.
- The expansion of passive, index-tracking funds channels European savings into U.S. companies because these funds predominantly follow U.S. or global indexes.
- Market dynamics - fewer new share offerings, delistings, and higher U.S. liquidity and valuations - are encouraging listings outside Europe, with visible valuation pressure in banks and the defence sector and relatively lower valuations in beverages.
- Risks / Uncertainties
- Ongoing regulatory decisions could continue to influence the competitiveness and attractiveness of European public equity markets - impacting financial institutions and market infrastructure.
- The prevalence of passive investing may perpetuate capital flows to U.S. markets, potentially reducing liquidity and valuation support for European-listed companies, notably in sectors like banking and defence.
- An expanded private equity sector that, in the view expressed, overpays for assets could compress opportunities for broad public participation in equity returns and alter valuation dynamics across industries.