Policymakers working on a new initiative to promote long-term investment and growth in Europe must take into account the characteristics of pension funds if they are to encourage greater participation in the region from investors, says PensionsEurope, which represents European retirement plans’ interests.
In a new discussion paper, launched at its conference in Brussels on Wednesday, PensionsEurope addressed issues that must be considered to increase European pension funds’ participation in the initiative, which is called Capital Markets Union.
The paper said European pension fund capital contributes to growth and jobs in the region, but that contribution could be increased.
“The success of the Capital Markets Union will depend on whether it will really facilitate long-term investments by pension funds in the European economy,” the paper said. “It is therefore crucial that any policies arising from building a CMU take into account the characteristics of pension funds.”
PensionsEurope said the mismatch between short-term regulatory frameworks and supervisor behavior, and the long-term nature of pension fund investment, should be addressed. The focus on short-term liquidity and “punishing illiquid assets … may excessively limit asset allocation to long-term investment categories,” the paper said.
The paper highlighted rules around central clearing, a proposed financial transaction tax, and the Shareholder Rights Directive, as financial market regulations that would potentially negatively affect pension funds.
PensionsEurope also called for improved transparency and availability of information for investment opportunities for pension funds; standardization, in particular, in parts of real estate and infrastructure investment; and, under the European Union investment plan — which aims to remove obstacles to investment, provide visibility and technical assistance to projects, and make smarter use of new and existing financial resources — the development of a project pipeline and advisory hub.
On infrastructure, PensionsEurope said the treatment of investments within regulatory and solvency frameworks should be “appropriate” — with no excessive risk premiums, fair risk-weighting and no daily pricing.
PensionsEurope represents national associations of pension funds and other institutions for corporate retirement plans across Europe, covering about €3.5 trillion ($3.9 trillion) in assets.