Invest Europe welcomes European Commission announcement of measures to strengthen role of institutional investors

Invest Europe welcomes the European Commission’s announcement of two measures aimed at strengthening the role of institutional investors, such as banks and insurers, in financing the EU economy.

Invest Europe’s members — including private equity, venture capital, and infrastructure managers across the continent, as well as institutional investors in these asset classes — are acutely aware of the importance of appropriately calibrating prudential rules to support Europe’s long-term growth, innovation, and broader investment agenda.

The review of the Solvency II Delegated Acts and the Communication on legislative programmes under the Capital Requirements Regulation (CRR) both represent steps in the right direction. The former will make it easier for insurers to include private equity and venture capital funds within their long-term equity portfolios, granting these investments the lower risk weights they merit. The latter will enable investment banks that co-invest alongside public institutions, such as the European Investment Fund, to be shielded from the significant capital increases triggered by the latest CRR review.

Together, these two developments could meaningfully enhance the ability of banks and insurers to channel their assets into funds that invest in businesses with the greatest positive impact on EU competitiveness.

Nonetheless, from an industry perspective, these proposals can only be seen as a starting point, for several reasons:

• The Solvency II voluntary long-term equity category remains complex to use, and it is uncertain whether the proposed changes will lead to meaningful uptake among insurers. This concern is particularly relevant given that all long-term funds with negligible leverage — except for ELTIFs — risk being excluded from such portfolios under the current drafting.

• The Communication on legislative programmes fails to address the fundamental problem within the EU banking framework, which continues to discourage banks from allocating even a small share of their assets to long-term equity investments.

In this context, completing the Savings and Investments Union will require significantly bolder action. We call for the creation of a dedicated long-term equity category within the banking framework, or for the introduction of alternative provisions that recognise the unique characteristics of long-term investors.

In his flagship report, Mario Draghi observed that “banks are typically ill-equipped to finance innovative companies: they lack the expertise to screen and monitor them and have difficulties valuing their (largely intangible) collateral, especially compared to angel financiers, venture capitalists and private equity providers.” It is therefore essential to ensure that banks are incentivised to support innovation through venture capital and private equity by introducing specific provisions to that effect within the EU banking framework.

Invest Europe stands ready to collaborate with the European Commission and national regulators to ensure that future measures translate into greater investment, more jobs, and stronger innovation across Europe.