Brussels is increasingly confident of attracting institutional interest in Europe’s ‘strategic’ investments, writes Jeremy Woolfe
Successes, so far, for the European Fund for Strategic Investments (EFSI) are forecast to result in a serious rise of input from the institutional investment sector over the next six months. As portrayed by European Commission sources, the sunny outlook for such funds – currently thought to be a limited to a trickle – is expected to get underway soon.
The brightening scene emerged during an announcement by the Commission that overall investment into the EFSI programme was now highly satisfactory. After 18 months, the €315bn Juncker Plan has reached a €100bn estimated to be triggered by the projects already in hand. While no precise figures are available at present, investment flows appear to be taking in funds related to broad-based sources, including venture capital, banks and own-company funds. A proper breakdown of flows is expected in the coming months.
As for institutional inputs, such as from the notably diligent pension fund sector, the Commission is taking steps to tackle certain “regulatory or administrative bottlenecks”, to ease the way for their free inward movement.
With this in mind, it refers to the “low degree of efficiency and transparency of public administrations, ineffective judicial systems and weakness in the business environment”. It adds: “These include high regulatory and administrative burdens, the lack of a predictable regulatory framework, and sector-specific regulations (involving cumbersome and lengthy approval procedures), which can hamper investment in large infrastructure projects.”
To break the evident logjam, the Commission is putting into effect a series of country-specific recommendations. These set economic-policy guidance for individual EU member states to be implemented over the next 12-18 months.
Another remedial feature, expected in the autumn, will be an extension of the lowering of capital charges to investors. These are planned to be on the lines of revised delegated acts in the Solvency II Directive. They came into effect for the insurance sector in April. Then, the risk calibration for investment in unlisted equity shares of such projects was reduced from 49% to 30%.
Other critical moves ahead, just announced for the Juncker Plan, include an extension of the lifetime of the whole programme – that is, beyond 2018. There is also to be a rapid scaling-up of investment into the SME sector. Here, the Commission notes that geographical coverage lacks balance. Eastern Europe mainly is benefiting from SME agreements under EDSI so far.
It notes that improved allocations can be gained using various tools, such as the European Structural and Investment Funds. Another envisaged plan is the establishment of Investment Platforms, involving actions across borders and in regions. Furthermore, the Commission announced that it was exploring an investment model to bring in private investors into “instruments” outside the EU.
As for the Common Consolidated Corporate Tax Base policy, set to offer a single set of rules for cross-border companies to calculate their taxable profits in the EU, the Commission intends to come forward with a “balanced, revised proposal in the last quarter of this year”.
Optimism resonated at the Commission’s presentation of EFSI results. It was stated that some original scepticism of the application of a 1:15 leverage has since proved to be not “too ambitious”. Looking at the broader EU economic picture, the Commission states that, over the last 18 months, conditions for an uptake in investment have improved. The EU is now in its fourth year of moderate recovery, with GDP growing at 2% in 2015.