EFAMA conference: Long-term finance

Conference microphonesFor bankers who want to be more socially useful, the funds industry could be the place to go. At a conference, fund managers discussed the creation of a non-bank, long-term finance market, which forms part of the

European Commission's plans for the next five years.

The market falls in with a wider project for capital markets union, which the European Union's new financial services chief, Jonathan Hill, has announced.

But a whole new skillset more familiar to the banking sector would have to be created in the funds industry, the European Fund and Asset Management Association (EFAMA) annual investment management forum heard last week.

In a discussion about the role that investment managers could play in a long-term finance market – or if they even should be in this market at all – Allan Polack, head of asset management at Nordea, said he hesitated over whether investment managers should enter the primary lending market, which in Europe is dominated by banks and covers areas much less familiar to fund managers, such as public-private finance partnerships.

"I hesitate over the primary market. The skillset to develop the market is very different from managing secondary market securities."

Massimo Greco, head of continental European funds at JP Morgan Asset Management, said that liquidity was a key challenge.

"We do not want to create the illusion of liquidity when the underlying investment is not."

But he also said that a type of long-term fixed income asset consisting of loans from investors could be a good investment for European savers.

Members of the panel – which also included Gareth Murphy, director of markets at the Central Bank of Ireland and chair of the investment management standing committee at the European Securities and Markets Authority, and Roderick Munsters, chief executive of Robeco Group – said that standardisation of the market could help overcome liquidity concerns.

Standardisation could remove the need to research each and every contract on its own terms. Covenance and insolvency factors could be among the elements standardised, said Greco.

The panel heard that hiring bankers would facilitate the creation of the market and that remuneration challenges this might present for the funds industry could be reduced by some bankers taking up roles for their social value.

In a keynote speech about the EC's agenda for the next five years, Olivier Guersent, deputy director general of DG internal markets and services at the EC, said creation of long-term finance market fits in well with the over-aching aim of creating a capital markets union.

He said that Hill, who became European commissioner for financial stability, financial services and capital markets union at the beginning of November, had also said it was unfortunate that non-bank long-term financing could also be described as a form of shadow banking. Shadow banking has come under regulatory fire in recent years.

Guersent also said that implementation of regulation from the past five years was also a specific aim of DG internal markets over the next five years.

The repair work for the financial crisis is "well on its way", Guersent said, and implementation – or level II measures as the EC calls them – is now the chief priority but would be "no walk in the park" with 400 implementation acts needed.

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