The ‘crystal transformation’ and the ‘Hollywood gap’

Perspective often comes from stepping back—sometimes decades back.

Close your eyes and imagine, for a moment, travelling to Europe in 1945. The continent lies in ruins. Political and economic systems are shattered. People bent on murdering one another, and large parts of the continent are under dictatorships of both left and right, going East to West.

The notion that, within a single lifetime, Europe could transform into a safe harbour of peace, borderless trade and democracy would have seemed fanciful at best.

From ruins to rules-based stability

Yet here we are. Today’s Europe is defined less by its violent past, than by its shared values of peace, trade and cross-border collaboration, underpinned by enduring institutions built on the continent’s ‘lived experience’.

Europe has been remarkably successful on its original goal of building enduring institutions for peace and trade. And this assessment extends well beyond the EU, across the UK, Switzerland and post-Soviet Eastern Europe. On this score, it would be hard not to award Europe top marks.

The power of crystallised intelligence

In his recent book ’From Strength to Strength’, Harvard Professor Arthur Brooks revisits an idea first developed during the Second World War by another Harvard scholar, Raymond Cattell: the distinction between ‘fluid’ intelligence—the spark of creative, disruptive problem-solving—and ‘crystallised’ intelligence: the accumulation of hard-won expertise, the ability to synthesise, judge, and build enduring structure.

Europe’s modern institutional success is rooted in this ‘crystallised’ intelligence. What began as the aftermath of repeated failures—centuries of conflict, treaties, and reconstruction—gradually crystallised into rules-based systems, shared frameworks, and cooperative instincts that anchor the continent today.

Europe’s real challenge is transformation, not decline

None of this is to deny Europe’s challenges. As outlined in the Draghi report, the continent faces major transformations: digitisation, decarbonisation of energy systems and achieving energy sovereignty, modernisation of pension and savings, and a fundamental shift in risk culture. These are precisely the areas where venture capital, private equity and infrastructure investment are best placed to accelerate change. There is hard work to be done—and trillions to be invested in this transformation.

The gap is visible across key structural dimensions like productivity, innovation, debt levels, sustainability, inequality, and even individual mental health. But this is not uniquely European. Every major region faces its own version of these challenges.

Europe is a plural ecosystem

Even within Europe, speaking of a single “ecosystem” is misleading. Europe is a mosaic with shining examples. From the capital markets and banking centres of London, Paris, Amsterdam;

to the engineering innovation of the Mittelstand;
to the ‘Nordic Bay area’ hubs of Stockholm, Helsinki and Tallinn;
to Switzerland – arguably the world’s most competitive country, combining stability and innovation;
to the entrepreneurial resurgence of what was once labelled the ‘European periphery’, with creative momentum in Madrid, Barcelona, Lisbon and Athens.

Are these images what comes to your mind when we talk about Europe’s competitiveness and innovation? I didn’t think so.

The ‘Hollywood gap’ and ‘LP laziness’

From a global investor perspective, the biggest disconnect is what I call the Hollywood gap: an outdated, inaccurate portrayal of Europe as lazy, ageing, boring, a place for pensioner holidays.

In my world of investing, I find such Hollywood gaps quickly turn into ‘lazy LP narratives’, and the resulting equation is: Hollywood gap + LP laziness = trillions in missed opportunity and misallocated capital.

What does the data actually say?

One of my very favourite sessions at Invest Europe’s flagship Investor Forum is the opening session, where leading global investors from both sides of the Atlantic share their data-led perspective on private equity performance. I have attended this session without fail for over a decade. And every year, the message is the same: long-term PE and VC returns in Europe are comparable to – and often exceed - those in the US.

This finding is confirmed by Invest Europe, the largest private capital association in the world. Through the European Data Cooperative, the association tracks investment and performance data for over 100,000 PE- and VC-backed companies, across more than 1,000 GPs and over €1 trillion in assets under management.

The results are clear: across all stages, European performance is comparable to the US. Venture capital leads in absolute terms, with a 19% net IRR. In buyouts, the European mid-market leads, delivering a 17% net IRR and a 1.8x TVPI—significantly outperforming its North American counterpart at 13.5% net IRR.

This data-led reality was a central pillar of Invest Europe’s recent ‘Quiet Power’ campaign, which I was glad to see reach millions of views on Youtube.

Stability as a competitive asset

So how do we reconcile perception and reality?

Either European investors are uniquely brilliant at extracting value from a fundamentally weak region; or, far more plausibly, the image simply does not match the data. Investors are natural pragmatists; they seek reliability, integrity of systems, and a minimisation of tail (existential) risk. Europe offers precisely this: a deep foundation of stability built institutional maturity. This is the region’s competitive asset: the cumulative effect of crises survived, lessons internalised, and cooperation institutionalised.

This is Europe’s “crystal miracle”. Through the deliberate application of this ‘crystallised intelligence’ over decades, collaborative institutional stability has been achieved. And for private capital, that stability is not a weakness, it is a competitive asset.

Be led by the data, not the Hollywood gap.

Elias Korosis

Chair, Invest Europe

Global Investment Partner, Federated Hermes Private Equity