STIMULATING PENSION FUNDS INVESTMENTS TO VENTURE CAPITAL: OPPORTUNITIES IN EUROPEAN UNION COUNTRIES

Abstract

Various researches show that venture capital supports higher-risk investments in young, potential start-ups by reducing existing financing gap for companies without performance history, reinforces dynamic entrepreneurial spirit by producing innovative and cutting-edge technology and products for knowledge-based economy, boosts economic strength by creation of jobs and revenues in venture-backed companies. Considering the total impact venture capital could make on the long-term economic growth, most of the EU countries have pointed the development of venture capital as one of the major priorities as venture capital. Insufficient market of investors for venture capital funds do not allow to reach significant level of venture capital investments in EU countries.
The higher level of venture capital investments can be achieved by stimulating investments of institutional investors into venture capital funds. Investments of well capitalized pension funds to venture capital could be very important source of long-term financing, which might ensure sustainable and continuous venture capital growth. From other side, pension funds stimulation is important not only to venture capital funds creation and development, but also to overall social insurance and pension systems in European countries, because of negative demographic Europe tendencies like aging society with increasing life expectancy, declining birth rates. Private pension systems creation and development, which would allow to get higher individual pensions, as financial stability for retired people, become one of the major priorities of governments.
In many EU countries, there are quite many various legal restrictions for pension funds investments and assets allocation, which reduce the potential higher financial return from invested assets. This raised question, are there any research for pension funds investments into venture capital funds, how pension funds investments are related to venture capital, why pension funds do not invest into venture capital, what kind of instruments can be created and implemented in EU countries for stimulating investments of pension funds to venture capital.
The aim of this paper is to provide main obstacles and stimulating instruments of venture capital investments development through pension funds, by explaining the relation between venture capital funds and pension funds investments and the features of pension funds activities in EU countries and main problems.
Theoretical analysis of the scientific works, research papers, practical fields in this research field, statistical data analysis allowed highlighting the problematic positions concerning pension’s funds investments into venture capital funds. Though main investors in venture capital funds in EU countries in 2003-2007 periods are pension funds, there are still problems in legal environment, pension funds assets allocation, geographical investments limitation. Main obstacles and stimulating instruments of venture capital investments development through pension funds and overall situation improvement are presented in this paper.