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The idea is one of three models set out in a paper written by Philippe Desfossés, chief executive at ERAFP, and Elliot Hentov, head of policy and research for the official institutions group at State Street Global Advisors, in a paper called ‘Let the Savers SAVE Europe and Themselves’.
The premise of the paper is the argument that the prevailing period of sustained ultra-low interest rates is a threat to Europe’s pension funds at a time when “European economies are suffering from a lack of investment, notably in infrastructure, as a result of fiscal limits and weak growth”.
On the whole, pension funds hold too much fixed income, according to the authors, who set out solutions for shifting pension savings into infrastructure investment while respecting “the spirit of funds’ prudential guidelines”.
Desfossés said: “We are overloaded with sovereign bonds bearing virtual capital gains, but we cannot realise those gains. To realise them, we would have to sell them, but, if it is to reinvest the proceeds in bonds paying the current interest rates, that would mean going back to square one.”
Infrastructure is seen as the asset class best suited to help realise the vision the authors have in mind, namely “liberated capital” in the form of capital gains from bond sales going towards those sectors of the real economy with the greatest potential for multiplier effects.
“In the euro area, investments should ideally also support the promotion of more integrated capital markets and the broader European Union,” they said.
They identify three models for channelling pension savings into infrastructure investment: “the repo model”, “the securitisation model” and “the guarantee model”.
Together, they amount to a proposal that is “a conservative approach in an asset class that tends toward long-term stability”, they write.