Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Currency Cogs

12957

Institutional investors need access to long-term instruments to finance real economy, says EDHEC-Risk

RELATED TOPICS​

Policy makers increasingly wish to see institutional investors become more involved in the financing of the real economy, but matching the supply of long-term capital provided by such investors with long-term investment demand is not self-evident.

EDHEC-Risk Institute says there needs to be a policy and regulatory focus on the type of instruments that long-term investors need, rather than which sectors of the economy qualify as “long-term” investment.
 
In its recent responses to the European Insurance and Occupational Pension Authority’s (EIOPA) consultation on the design and calibration of the Solvency II Standard Formula for long-term investment (May 2013), and to the European Commission’s Green Paper on long-term financing (June 2013), EDHEC-Risk Institute has highlighted three important points:
 
1. Providing long-term finance to the real economy is not part of the mandate or mission statement of insurers or pension funds, which cannot be expected to have much interest in financing infrastructure or SMEs per se.
 
2. Instead, they are increasingly attracted to such investments because of the risk factors to which they provide exposure, and the extent to which increasing their exposure to the aforementioned risk factors helps them achieve their own investment objectives.
 
3. Thus, insofar as long-term financing will increasingly be provided by institutional investors in Europe, it will be to respond to institutional investment needs and focus on those investments and instruments that can best allow them to meet their long-term investment objectives while respecting their short-term constraints, especially their funding or solvency ratios.
 
It argues that the design of prudential frameworks like Solvency II should not be altered to accommodate “infrastructure” investments for example, but “project financing” i.e. the type of investment vehicle and instruments that allow long-term investment to take place and embodies what investors are after when they consider investing in infrastructure. Indeed, it is perfectly possible to invest in infrastructure without making a long-term bet (e.g. listed infrastructure).
 
Policy makers and regulators should support the use of existing long-term instruments, as well as the creation of new ones that better respond to investors’ needs e.g. inflation-linked infrastructure debt.
 
EDHEC-Risk Institute will continue to contribute to the debate on long-term investment, including through its participation in the next G20 meeting of Finance Ministers in Moscow (July 2013) and the next OECD/APEC meeting on institutional investment in infrastructure in Indonesia (August 2013).

Latest News

Irish domiciled funds surpassed EUR4.3 trillion AuM (Assets under Management) at end-March 2024, a 15..
New analysis by London-based Nickel Digital Asset Management reveals 38 listed companies with a combined..
Bloomberg has announced that for the first time, its proprietary Bloomberg Second Measure (BSM) transaction..

Related Articles

Global ESG Investing
On May 15 Florida’s Republican Governor Ron DeSantis signed legislation that furthers his ongoing campaign to oppose the role of climate change and ESG factors in state policymaking...
On May 15 Florida’s Republican Governor Ron DeSantis signed legislation that furthers his ongoing campaign to oppose the role of..
Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Different flavours
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers...
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led,..
UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by