Turning collective savings into private equity investments: The Covid-19 crisis as a catalyst for pan-European efficient resource allocation

With the coronavirus crisis, we anticipate an aggravation of the inefficiency of the allocation of financial resources in Europe, with excess idle savings from households and an increasing shortfall of equity for many companies impacted by the economic downturn. We discuss the conditions under which, on the one hand, the savings surplus could be mobilized, and on the other hand, the corporate world could accept the infusion of outside equity capital. The proposed solution, following standard Asset & Liability Management (ALM) principles, is the setup of a private equity fund offering callable, convertible and cumulative preferred shares, funded through the issuance of either (i) a pan-European bond with floating coupon assorted with the public guarantee, or (ii) an asset backed security with a senior fixed coupon and a junior equity tranche, with the collaboration of the financial sector.