The language coming out of Brussels in the first three months of 2015 has centred heavily on the Capital Markets Union (CMU), the grand idea of a single market for finance, bosting lending to small and medium-sized enterprises and investment in infrastructure. At this year’s National Association of Pension Funds (NAPF) Investment Conference, in Edinburgh, the European Commission was nothing if not on-message.
A common market for capital formed part of the idealistic foundations of the EU almost six decades ago. Years later, the value of institutional assets, particularly in pension funds, makes it a ripe target to back the capital freedom dream. In a co-ordinated attempt by the Commission to woo investors, delegates heard from both the European Securities and Markets Agency (ESMA) and commissioner Jonathan Hill, the UK representative charged with Financial Stability, Financial Services and the CMU, who used his first speech on home soil to discuss the idea.
Communicating its initial thinking on the CMU in a Green Paper consultation, the European Commission says it wants to end the dependence on bank lending for SMEs and bridge the divide between investors and investable opportunities. The co-ordinated initiative plan also came just after the EU launched the European Long-term Investment Funds (ELTIFs) – and the ‘Juncker Plan’, a €315bn scheme to channel investment into European infrastructure.
“The pensions industry is the guardian of one of the biggest sources of funding in Europe,” Hill said to NAPF delegates. “You necessarily play a crucial role in capital markets and society more widely and are increasingly important investors in the European economy.”
Hill took time to pay respect to the NAPF’s attempts to channel pension fund money into infrastructure via the “for pension funds, by pension funds” Pensions Infrastructure Platform (PIP), which celebrated its first anniversary with a £20m (€28.2m) investment from new investor Tesco Pension Scheme.
“It seems that it has got off to a good start,” Hill said of the PIP. “It complements what the Commission is seeking to achieve with its plan for Europe. There isn’t a silver bullet. Rather, we will need to identify barriers, one by one, and work out how to overcome them. We will need to work hard on difficult, sometimes long-standing issues, such as securities laws, investment restrictions, tax treatments of debt and equity and insolvency regimes.”
The Commission’s focus, apart from strong plugs for involvement by pension funds in capital markets, was on engagement with investors. ESMA chair Stephen Maijoor stressed that the CMU’s entire credibility hinged on investor protection. His four-point plan for boosting the CMU included two on increasing the attractiveness of capital markets to investors and harmonising regulation.
“The CMU is an ambitious initiative,” Maijoor said. “Actions need to be taken to build this much-needed union, which is an appropriate response to build a strong, safe and integrated EU capital market that will help the EU economy to flourish again.
“The end goal should be a CMU based on an accelerated integration of the capital markets of the 28 member states. This CMU should be competitive and efficient and provide a wide range of funding channels, and the protection of investors should play a major role in building it because the CMU will only be successful if it is and remains trusted by investors.”
In the end, the Commission’s work in Edinburgh sought collaboration and harmonisation, with Hill concluding that the open capital market was an idea worth fighting for, given that companies would be able to access finance and pension scheme savers see their investments directed towards better opportunities.