The switch to equity investment is long-established in the UK, but it is novel to the rest of the Community. Dutch pension funds took advantage of the euro to dramatically increase their 'euroland' equity holdings at the expense of Dutch government bonds and national equity. This process is set to continue, as fiscal consolidation results in lower interest rates and a reduced supply of government bonds. For companies, capital markets financing is replacing bank-based financing. Increasing demand for equities is matched by a rising trend in stock market capitalisation.
European companies demand cheaper and more flexible access to capital.
At the same time, institutional investors need to link pension savings to the real economy. A potential win-win situation exists. The wider benefits to the economy will be amplified if institutional investors place some of their portfolio in risk-capital. This will assist the expansion of SMEs and the creation of new firms. The blurring of traditional frontiers between financial services providers is accelerating.