Nathan Griffiths: Can policymakers boost the economy through new investment offerings?
By Nathan Griffiths, Sustainable Finance, EY Netherlands
It is stating the obvious of course to say that geopolitics has dominated the political landscape in Europe in 2025 to date. With the Trump administration doing little to conceal its distaste for the European Union, European countries are facing the need to significantly increase defence spending after decades of death by a thousand cuts, whilst simultaneously dealing with the threat of a global trade war.
Because the upheaval has been so dramatic, limited attention has been paid to increasing attempts to unlock Europe’s huge private savings pool to re-stimulate the economy. European households’ savings amount to more than € 35,500 billion. In the third quarter of 2024 the savings rate in the Euro area was 15.3%. This is more than triple that of the US, and an important factor in the long-term economic underperformance and lack of productivity growth. Part of the difference is higher consumption rates. However, the higher risk appetite for investing in the US is a meaningful factor. Americans are far more inclined to invest in risky assets than their European counterparts.
Major difference in focus on investing
These cultural and behavioural differences are deeply ingrained. Cash holdings as a proportion of wealth are two to three times higher in Europe than in the US. Yet, while Americans are generally more inclined to invest than their European counterparts, this is also a result of policy. In the US, defined benefit pension schemes – where the payout on retirement is fixed and not directly tied to investment performance – account for less than 30% of pension assets. According to the ECB, this is 75% of pension assets in the Euro area. This is hugely important because American private sector workers are actively involved from an early stage in their careers in choosing their investment allocation through their 401k plans. Defined contribution schemes – where the final pension pot is driven by investment performance – lead to far more attention being paid to how and where savings are allocated. And with it, the importance of long-term investing for financial health.
A knock-on effect is that Americans are up to three times more likely to allocate to private market funds than Europeans in the search for better risk-return profiles. As a direct result of higher institutional and private investor risk appetite, more than $1 trillion was invested in US venture capital in the 10 years to 2023, for example. In contrast, Invest Europe estimates that a total of €143bn was invested in Europe during the same period. This drives the greater, innovation, higher R&D spend, and higher productivity the US enjoys. Investment vehicles are also growing rapidly to invest in infrastructure and real assets, which provide alternatives to investing in low-yielding government bonds.
Larger capital pools
Changing the pension system is notoriously difficult despite the necessity of moving away from defined benefit schemes. Backlash from stakeholders and vested interests in Europe means the shift towards defined contribution is slow-moving. Instead, policymakers are trying to create new structures that will encourage the formation of more pools of capital to invest in areas to boost growth and productivity. There is an ongoing open consultation on a new ‘Savings and Investment Union’, which aims to encourage Europe-wide venture capital funds to provide the necessary higher funding for large-scale technology investments.
ELTIF fund structures
Whilst we wait to see what this may look like, the revamped ELTIF fund structures have been available since January 2024, providing retail investors with the opportunity to invest in a range of private assets. The new structure provides more flexibility in investment strategies, encompassing private equity, venture capital, infrastructure, real estate and private credit. There are also more liquidity provisions to enhance the appeal, which allow investors to trade on the secondary market.
The ambition is to channel more household savings towards investments that can energize the European economy and boost productivity. While investing in traditional equity and bond funds involves trading existing assets, the ELTIFs are designed to create new economic activity. The increased flexibility in investment strategy should ultimately provide a full suite of opportunities, from high-risk venture capital to lower risk investments in infrastructure assets which nevertheless generate significantly higher returns than those available in savings accounts.
The market remains nascent but should start to take off as fund platforms provide more access, and investment managers create new products. As with all investment products, success ultimately depends on people’s willingness to invest. However, the creation of these vehicles could potentially provide new and appealing opportunities for investors, whilst boosting long-term economic performance.