Blackstone says Europe regulation restrictive

Garrett Moran, Senior Managing Director and Chief Operating Officer of Blackstone's Private Equity Group, speaks at the Reuters Private Equity and Hedge Funds Summit in New York, March 2, 2010.

NEW YORK (Reuters) - Proposed regulation in Europe would add a lot of restrictions to raising capital on the continent, but it is questionable if it will go through as planned, a senior executive at private equity giant Blackstone Group (BX.N) said on Tuesday.

The industry is facing regulation in Europe that would require greater disclosure by private equity, and could restrict firms based outside the European Union which want to raise money from European investors.

"It puts a lot of restrictions on your ability to raise capital in Europe if you're not a Europe-domiciled business; which is sort of restrictive to trade," said Garrett Moran, chief operating officer of Blackstone's private equity unit, at the Reuters Private Equity and Hedge Funds Summit.

"We think it is pretty fluid and that it is going to change a lot between now and the end," he added.

The long-debated legislation to make the buyout industry and hedge funds more transparent has been criticized by some private equity firms for, among other things, duplicating their reporting standards and adding unnecessary cost.

Some in the private equity industry have argued that there was progress under the Swedish presidency of the EU in having their views heard, but say further changes under the Spanish presidency since the beginning of January had been a step back.

Blackstone has offices in London and Paris, and has been active investing in Europe.

In general, New York-based Moran said that deal activity is increasing, and financing available has risen back to about six times a company's cashflow.

He said Blackstone has predominantly been doing deals that fit into the category of "special situations," such as the purchase of frozen foods maker Birds Eye Foods by its portfolio company, Pinnacle Foods. That included an investment of $300 million of equity into Pinnacle, a source familiar with the situation said at the time.

Deals to buy failed banks remain difficult, following rules that the FDIC brought in six months ago, he said.

"It is very straightforward in terms of the capital cost. You have a higher break-even point depending on what kind of return you're trying to get," he said. "It is like getting leg ankle weights in a race -- it's a disadvantage. We're just always trying to figure out how to ... win a race with those ankle weights."

Blackstone has also applied for a British banking license, sources said earlier in the year, which they said could be up and running in the first quarter.

"In financial services generally, a big theme over time is to look at start-ups, in all varieties," Moran said, although he said that was harder to do with banks in particular.

(Reporting by Megan Davies; Editing by Richard Chang)