Timo Löyttyniemi, the chief executive officer of Finland’s State Pension Fund (Valtion Eläkerahasto, VER), is calling for the creation of capital market infrastructure to bolster innovation in Europe by making European growth companies more attractive to institutional investors.
In a new blog published on the website of the €23.3bn buffer fund for central government staff pensions, he said Europe had huge potential in terms of knowledge and skills, but the market for European innovations was under-developed compared to the US.
“But now we have a springboard,” he said, adding: “Statistics show that Europe outperforms the US when it comes to 10-year venture capital returns.”
He cited figures released at the end of June from Invest Europe, an association representing the continent’s private equity, venture capital and infrastructure sectors, which showed European venture capital had yielded 20.77% net internal rate of return (IRR) over 10 years, and 16.57% net IRR over 15 years, outperforming the North American peer group over the same time periods.
Löyttyniemi said the fact that European venture capital had outperformed could be used to create a roadmap for progress to increase the attractiveness of European growth companies from an institutional investor perspective at the various stages of development.
“When there is a good and functioning market for innovations, it will drive workers and researchers to innovate. A pre-condition for a sound market is a multi-tiered, highly functional capital market infrastructure,” the pension fund CEO said.
In the blog, Löyttyniemi said several attempts had been made to encourage innovation in Europe, in response to the status quo – that significantly more innovations are made in the US.
As things stood, he said, US tech giants led the tech race, the venture capital market was stronger across the Atlantic and tech IPOs took place stateside.
But things could change, he said, adding that in the US, most patents were registered by start-up companies.
“Hence, fostering a growth market for start-ups is one way of promoting innovation,” he noted.
The VER CEO drew up a list of market infrastructure measures to boost European innovations, such as actively communicating about the profitability of venture capital funds, and creating funds of funds for the venture capital sector, which he said would allow investors to be collectively involved in start-ups.
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