The politician leading the European Parliament’s review of the EU’s pension fund legislation has defended his proposal for a mandatory allocation to venture capital (VC) amid forceful criticism.
As reported by IPE last week, Damian Boeselager’s proposal for the next version of IORP II Directive includes a requirement that EU pension funds with more than €1bn in assets under management invest at least 2% of these assets in VC, “in accordance with the prudent person principle and in a manner consistent with the interests of their members and beneficiaries”.
The European Commission’s IORP II review proposal is now open for amendments by other MEPs until 25 June. Votes to finalise the Parliament’s negotiating mandate are scheduled for after the summer. The EU member states’ body is further along, with a negotiating position potentially to be announced next week.
Boeselager, co-founder of the Volt party, which sits with the Greens in Parliament, is not expected to be able to obtain a political majority for his mandatory VC allocation proposal, but it could be retained in a bid to secure a compromise outcome, like a ‘comply or explain’ feature. IPE understands that this was included in earlier draft reports from the rapporteur’s office.
In the meantime, the MEP and colleagues in the Volt party have taken to LinkedIn to explain their draft IORP II report, specifically the VC allocation proposal. Boeselager’s post attracted almost 100 comments, of varied substance, with some people viewing the rapporteur’s comments positively and some negatively.
Exit markets, instruments
A recurring theme was pushback against Boeselager’s diagnosis on the grounds of it being “backwards”, with commentators arguing that the problem in Europe wasn’t one of capital allocation but of profitability or attractiveness.
Some honed in on the state of the exit market in Europe as a key issue.
In an opinion piece in IPE this week, Jorik van Zanden, a strategy consultant at AF Advisors, warned European policymakers against forcing the Savings and Investments Union (SIU), saying it needed to be enabled rather than mandated.
“However well-intentioned, a quantitative investment mandate inverts the logic of the directive and fiduciary responsibility,” wrote van Zanden. “If venture capital is attractive for a given scheme, the prudent person principle already permits it. If it is not, no directive should compel it.”
Elias Korosis, chair of Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, has also said mandating venture capital allocations was not advisable.
“Europe has to show that is a good place to put capital at work,” he said in an interview with IPE.
At the Dutch pension federation, Matthies Verstegen, who heads the association’s Brussels office, welcomed policymakers paying attention to the EU start-up and scale-up ecosystem, but said the right approach was to set up different instruments to attract investors, as the European Commission and the European Investment Bank were doing with the Scaleup Europe Fund and the European Tech Champions Initiative 2.0 (ETCI 2.0).
APG Asset Management, on behalf of civil service pension fund ABP, is a founding investor in the Scaleup Fund, which Swedish investment firm EQT has been picked to manage.
“Mandatory allocations, particularly in such a specialised asset class, are not the right way to promote funded pensions,” wrote Pensioenfederatie’s Verstegen in response to Boeselager’s LinkedIn post.
“Starting to direct their investments towards political goals risks undermining the trust that is there in well-developed systems and I doubt that it would help to expand fledgling ones.”
He added: “Also, a sudden influx of mandated investments chasing investment opportunities may not be the best for market efficiency. So let’s focus on what Europe can do to lure in investors, rather than coerce them.”
Similar ideas were expressed by other pension industry groups, such as the European Association of Public Sector Pension Institutions and the European Association of Paritarian Institutions.
Do it in parallel
Responding to some of the criticism, Boeselager said his IORP II proposals were intended to safeguard successful pension systems and that the 2% VC allocation floor was designed to be “narrow”, what with only applying to around 280 schemes and being part of a broader productive investment framework.
“ETCI 2.0 and the Scaleup Europe Fund are welcome but they are vehicles, not capital,” he added. “Without a clear signal from the legislator, the 0.12% does not move — that has been the lesson of the last decade.”
The rapporteur agreed that exit market liquidity was a problem for late-stage VC in Europe, but pushed back against calls to leave the EU pension fund framework alone.
“To make this successful and deliver returns, the exit market matters — and SIU, the listing act and the consolidation of post-trade infrastructure are all on that track,” Boeselager wrote. “But we cannot keep sequencing reforms forever: ‘first deepen markets, then mobilise capital, then we’ll talk about pensions’.
“That sequence is how we got to 0.12%. Mobilising long-term capital and deepening exit markets is a parallel exercise, not a serial one. And we have to start somewhere.”
