Elias Korosis, chair of Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, has called for policymakers to create the conditions for pension funds to increase allocations to venture capital.
Korosis told IPE that policymakers and regulators should remove barriers that continue to deter investment in venture capital, which is still widely perceived as a risky asset class, and help make venture capital and private equity more attractive investment opportunities.
Regulators, in particular, have an important role to play in reinforcing the view that investing in venture capital and private equity is “a safe thing to do”, he added.
According to Korosis, the future development of the European Union will depend in part on how its pool of pension assets is invested.
He argued that one of the biggest opportunities is to increase allocations from defined contribution (DC) pension funds to venture capital and private equity, which remain largely inaccessible because many regulatory frameworks were designed with listed markets in mind.
Regulatory, legal and tax fragmentation across the EU also continues to create obstacles to pooling pension fund assets for investment in venture capital and supporting economic growth.
Allocations by European pension funds to venture capital remain extremely limited, accounting for around 0.12% of more than €3trn in assets under management, according to a report by Pensions for Purpose.
Against this backdrop, European Parliament rapporteur and MEP Damian Boeslager has proposed a “calibrated mobilisation requirement” as part of the review of the IORP II Directive. The proposal would require pension schemes with more than €1bn in assets under management to invest at least 2% of their assets in venture capital.
According to Boeslager, the proposal reflects the urgency of directing more capital towards European venture capital while avoiding additional requirements for smaller schemes, building on recommendations in the Draghi and Letta reports.
Korosis said that removing obstacles and avoiding undue regulatory or “herd” constraints on investing a small proportion of assets – such as 1-2% – in venture capital could make a significant difference where the default allocation is effectively zero due to inertia rather than active investment decisions.
However, he said mandating venture capital allocations is not advisable.
The review of IORP II and the EU’s plans to build a Savings and Investments Union (SIU) demonstrate “the huge imperative Europe is facing to channel capital towards private markets”, and represent “a challenge that should be met”, Korosis said.
“Europe has to show that is a good place to put capital at work,” he added.
Preparing the ground
Governments across Europe are seeking to create conditions that encourage pension funds to invest in start-ups and growth companies.
State-backed initiatives such as TiBi in France and WIN in Germany aim to support ecosystems of institutional investors, asset managers and pension funds investing in technology companies.
In Italy, legislation exempts pension funds from taxes on investment commitments to venture capital.
According to Korosis, initiatives such as TiBi help create the conditions needed to encourage investment in venture capital.
“I don’t see why there should not be a tax incentive, for example, to invest in venture capital if we want to support the real economy,” he added.
