European risk premium justified

There is a European risk premium that investors can access, executive director of the Fonds de Réserve pour les Retraites, Olivier Rousseau, told delegates at the opening of the Fiduciary Investors Symposium, at INSEAD in France.

In a session during which he explored whether there was a European risk premium, whether one could be justified and how big it could be, Rousseau said there was a 5-10 per cent premium in the eurozone and a 10-15 per cent premium for the French market.

“The European risk premium is very much there and is connected with the political landscape we have been through over the past few years, [which has] taken a more dramatic turn recently,” Rousseau said. “What has happened elsewhere is of great significance for the eurozone. Markets don’t like the eurozone very much; the euro is weak and equity markets have been underperforming.

“There are not bad policies but we have inflicted a lot of problems on our markets with Basel III and Solvency II. And you have first-class companies in Europe.

“Profits have not been doing well in the eurozone, which is why markets have not been doing well.

Conditions for a recovery in the sharemarket are there, but we have the geopolitical risk overhanging.”

Also speaking at the Fiduciary Investors Symposium, Philippe Tibi, professor of finance at École Polytechnique, said venture capital could help transform the European market the way it has transformed US capitalism. The US enjoys 60 per cent of venture-capital flows, he said, followed by China, which already receives 20 per cent of flows. Europe represents 10-12 per cent of the funds allocated to venture capital.

“Why is it such a small allocation, given the size of the economy? It’s not because of lack of talent or size. The problem for Europe is more about institutions and agents,” Tibi said.

In Europe, wealthy individuals tend to invest outside of the continent, he explained, and institutions are restricted by legislation. He called France one of the few hubs of Europe.

“We have a vast pool of talent; there are 60,000 French people in Silicon Valley. We have 13 Noble Prize winners and are strong in science and mathematics,” Tibi said.

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