Creating Long-Term Value in Europe's Capital Markets: Opportunities and constraints

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Background

Many factors – changing economic/financial conditions, evolving demographics and regulatory as well as technological developments – will impact asset allocation in the coming years. In anticipation of these changes, the Mid-Term Review of the Capital Markets Union (CMU) Action Plan set out new priorities in a number of areas concerning asset allocation: i) fostering retail investment; ii) increasing long-term, infrastructure and sustainable investment; and iii) removing barriers to cross-border investment.

In order to contribute to the debate on this important policy issue, CEPS and ECMI invited relevant stakeholders – policy makers, industry representatives and academics – to take part in a special Task Force on “Asset Allocation in Europe: What challenges and opportunities lie ahead”. The main objective of this initiative is to substantiate the understanding about the need to facilitate European households’ access to savings products with stable returns over time, and to promote long-term investment through more capital markets-based financial intermediation across the EU.

This first Interim Report is based on the discussions among the experts present at the Task Force meeting held on 14 June 2017. Together with the two subsequent reports, it will form the basis of the Final Task Force Report, which will put forward a series of policy recommendations supported by in-depth quantitative and qualitative analysis. More detailed information about the Task Force is available here.

Summary

European households have been increasing their participation in capital markets in recent years. Nonetheless, a more balanced, diversified asset allocation is needed. Enhancing access to products with a rewarding risk-return profile, transparent pricing and cost structures should remain a priority. Moreover, encouraging long-term-oriented financial intermediaries to activate those savings and investment channels could further enable the transition towards more sustainable economic models. In the investment community, generating real positive returns has become increasingly difficult, given the low-yield environment. Some institutional investors have shifted their portfolio allocation further down the credit risk spectrum, also venturing into assets with increasingly longer maturities and the alternative assets space. In particular, the asset management sector is expected to undergo fundamental changes driven by increased regulatory scrutiny and the new competitive landscape. 

Suggested citation

Amariei, C. (2017). Creating Long-Term Value in Europe's Capital Markets: Opportunities and constraints1st Interim Report of the CEPS-ECMI Task Force on Asset Allocation in Europe, ECMI, Brussels.

Cosmina Amariei is Researcher at the European Capital Markets Institute (ECMI).