Pension funds shielded from Solvency II

The EU decision on capital requirements comes as the European Parliament works on establishing a new Long-Term European Investment Fund structure.

The infrastructure asset class has dodged one of its most menacing regulatory bullets, the European Venture Capital Association (EVCA) announced today.

According to the private equity industry body, the European Commission has dropped plans to impose drastically more stringent capital requirements on pension funds. These were included in a proposed revision to the Occupational Retirement Provision Directive (IORP), the EU legislation for pension funds.

Debated changes would have created a regime modelled on the Solvency II legislation, which require insurers to hold a greater amount of capital against investments deemed riskier than plain vanilla fixed-income or equities. The new rules also demand a boost in governance processes, reporting and transparency.

Internal Market Commissioner Michel Barnier eventually decided against proposing similar requirements for the continent’s pension funds.

“Even if it is not the primary motivation for this decision, one positive consequence of it will be that long-term asset classes […] will not have to fear that they are about to be priced out of the market for pension fund investment,” said Michael Collins, director of public affairs at the EVCA, in a blog post featured on the association’s website.

“Many fear they could be for insurance company investment if the final technical details of Solvency II are not got right.”

Members of the European Parliament also recently voted for a first set of amendments to the proposed establishment of a new European Long-Term Investment Fund (or ELTIF) structure. Its purpose would be to provide an EU-level stamp to new investment platforms that encourage investors to commit to longer-term assets, which could include private equity, venture capital and infrastructure.

The news comes amid renewed public focus on the role of investment in boosting the competitiveness and growth potential of the continent. The European Commission this week issued a green paper to launch a three-month public consultation on how to foster long-term financing and diversify financial intermediation for long-term investment in Europe.

“Europe faces large-scale long-term investment needs, which are crucial to support sustainable growth. To fund long-term investment, governments, businesses and households need access to predictable long term financing,” it said in a statement on Tuesday.

Sectors singled out as a priority by the institution included energy, transport and communication infrastructures, as well as climate change, eco-innovation technologies, education and research and development.