New “patient capital” fund structure a key element of EU’s €300bn investment plan

A new European fund structure originally aimed at attracting “patient capital” from pension funds and insurers is emerging as a key element of the European Commission’s ambitious €300bn plan to kickstart the EU economy.

New Commission President Jean-Claude Juncker launched the “Investment Plan for Europe” to great fanfare last week and it seems the European Long-Term Investment Fund (ELTIF) structure – brainchild of former Internal Markets Commissioner Michel Barnier – will be a central part of it.

The ELTIF regulation, proposed in 2013 under the previous regime and before Juncker had formulated his plan and his over-arching Capital Market Union idea, was passed last week by the European Parliament and the member state-level Council.

“As an element of the Capital Markets Union, [ELTIFs] will also support the EU’s Investment Plan,” said Commissioner Jonathan Hill. His colleague, Commission Vice President, and former Finnish Prime Minister, Jyrki Katainen said the move would “provide an EU regulatory framework and passporting rights for funds specialising in long term investments, for example in infrastructure projects or SMEs. This is positive first step” to help Juncker’s plans.

In a speech in Brussels yesterday (December 1), Katainen also spoke of how the planned ‘European Fund for Strategic Investments’ (EFSI) at the European Investment Bank will help make the EIB a ‘one-stop’ platform: “Essentially we want to build a true investment hub under the auspices of the European Investment Bank.”

It would be a “a one-stop shop for all stakeholders in the investment process: public authorities that wish to make use of innovative financial instruments: potential investors and potential investees”. The fund would have a professional investment committee “free from political interference”.

Indeed, the Commission says the EFSI vehicle could finance not only individual projects, but also ELTIFs set up by private investors or development banks.Katainen continued: “Our aim with the investment plan is to change the dynamics of the risk debate for the private sector and address a market failure.”

As RI has reported, the EFSI has earmarked part of its capital for renewables and energy efficiency. It comes as the appetite for infrastructure among European pension investors was demonstrated again today as the Norwegian Ministry of Finance said it would ask an expert panel to assess whether the massive Government Pension Fund should invest in the asset class.

Fund management industry body the European Fund and Asset Management Association (EFAMA) welcomed the approval of the ELTIF rules saying in a statement it was a “concrete step forward” in the long-term investment debate in the EU. The goal is to have ELTIFs operational by mid- 2015.

The European Association of Long-Term Investors (ELTI), the 23-member body with combined assets of €2.3trn, coincidentally holding a debate in Brussels today on the very subject of financing long-term sustainable investments, called the Juncker plan “of direct interest”.

ELTI, launched after the Commission’s Green Paper on Long-Term financing in 2013, includes institutions such as France’s Caisse des Dépôts and Germany’s KfW as well as the likes of Dutch pension investor APG.

As originally envisaged, ELTIFs were to be available to all types of investor, professional and retail, across Europe and managers would comply with the Alternative Investment Fund Managers Directive (AIFMD) on investor protection and not the EU’s regular UCITS fund regime. They would invest in illiquid assets – and investors would not be able to withdraw their cash until the specified end date of their investment, which could be 10 years or more, although the Commission expected a secondary trading market to emerge.

At least 70% of ELTIF assets have to be long-term. They can only invest in unlisted companies, “real assets” or the new European Social Entrepreneurship Funds (EuSEF) and Venture Capital Funds.