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News & opinion

CMU 2.0: yet another Soviet quinquennial plan or Europe capitalists’ dream?

12 Oct 2020

To all those that consider that the EU is equivalent to the Soviet Union, the presentation of a quinquennial plan may sound like some sort of proof. But whatever the views of the financial services industry has of the European Commission (you are welcome to share those if you are indeed part of that bubble), the CMU 2.0 presented last month has less to do with agrarian reform than with allowing finance to play its role in providing capital to the economy.

5 years ago, there were four actions specifically targeted at the private equity asset class:

  1. the review of the EuVECA
  2. the review of AIFMD barriers to cross-border marketing (CBDF)
  3. new Solvency II rules for equity
  4. the VentureEU pan-EU fund-of-fund

After intense years of negotiations, all four revisions have now been published and overall have made marketing and fundraising easier in Europe (if you are an Invest Europe member, you can read here our guides on EuvECA, on CBDF and on Solvency II for more details).

Any “Brussels operative” knows that there is no such thing as a complete overhaul of the full financial framework but the brand new CMU Action Plan is not just a communicating exercise. It contains a series of initiatives that deserve careful consideration not just the direct impact for financial services, but equally for the adhering ambitions on taxation, supervision and corporate governance. 

As representatives of the private equity industry, we understand, after much attention was given to private markets in the first exercise, the focus has naturally shifted to public markets. But the truth is that, within the confines of the proposed programme, there is still much to be done to allow private finance to play its part in supporting the companies that will fuel tomorrow's jobs and growth.

And for a right reason: as Invest Europe’s recently published Private Equity at Work report shows, private equity-backed companies create on average 5 times more jobs than those in the overall market


So what’s most important to private equity and why does it matter to the Commission?

  • Firstly, the remodeling of the long-term investment voluntary passport, ELTIF, represents a key opportunity to attract new investors into long-term equity (look at our previous blog on ELTIF to know about this).
  • Secondly, correcting some fundamental misunderstandings about the risk of investing in private equity funds in the big institutional investor prudential regulations may help banks and insurers to put their capital to good use without facing the risk of direct investing.
  • Thirdly, shining a light on sophisticated high net worth individuals, which are crucial investors into our asset class, may help channel capital from those who need to invest it for those who need it to be invested. If a change to the rules would push high net worth individuals to allocate only an additional 1% of their wealth into the asset class, this could represent €130 billion of investment in venture capital and in private equity, without putting grandma’s pension in jeopardy

Whatever the outcome of negotiations to come with Parliament and Council, it will be crucial that the CMU 2.0 keeps on the tracks laid down by the now archived predecessor, upholding the fundamental principle that finance’s key role is to provide capital to businesses and that it requires the right conditions to do so.

There’s a W. Allen quote that “if you want God to laugh, tell him your plans”, which is probably sadly fitting to all the (many) “2020-Strategy”’s not coming to fulfillment this year. The Capital Markets “plan” from the European Commission deserves, however - not a laugh - but a reasonably big smile.   

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