To reach defence, climate and infrastructure funding goals, European governments need to implement structural reforms to attract private capital, urges a briefing by law firm Travers Smith.
“Private capital has emerged from the shadows and is now seen as a critical partner for growth,” the briefing said. “There may never have been a better time for alternative asset managers to work with governments to help them design effective interventions.”
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While regulatory reform is seen as vital to drive more private capital towards government goals, Travers Smith says public incentives are also likely to be needed to get private investors over the line.
Publicly sponsored innovation funds, such as the UK’s National Wealth Fund or European Investment Fund, are mentioned as successful examples to scale up private capital for public purposes.
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The briefing also references blended finance as an instrument to scale public and private sector investment. The law firm argues that providing a first-loss guarantee or geared upside for the private sector investor – or a guaranteed return on the project in the form of a floor price, price subsidy or demand side protections – might be the best way to unlock the dry powder of private markets.
Lessons can also be learned from the renewable energy sector, which is now able to stand on its own, the briefing said.
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