SME growth is firmly on the EU political agenda and has been heavily un- derscored in the European Commission’s Capital Markets Union (CMU) action plan. In this perspective, institutional investors and in particular pension funds have been seen as a key source of long-term capital for SMEs, as the balance sheets of banks have become increasingly stretched. Unfortunately, in too many European countries, including Italy, pension fund investments in equities remain low. The present paper reviews the related literature and discusses policy proposals aimed at fostering the role of pension funds in providing “patient” capital to the real economy. At the European level, the CMU should foster the creation of an effective European internal market for pension funds, promoting standardized rules for institutional investors to spur foreign investments and avoiding discriminatory taxation for cross border investments. At the national level, it is important to improve the governance of pension funds and promote initiatives for the aggregation of pension funds aimed at reducing market fragmentation.
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