Short-termism damages EU economy - French investor

By Huw Jones

BRUSSELS, Feb 22 (Reuters) - Europe's financial market is too focused on quick gains at the expense of investing over the longer term to build corporate champions, France's oldest venture capital firm said on Thursday.

"Europe's financial system is not promoting the emergence of new growth companies as it should," said Jean-Bernard Schmidt, managing partner of Sofinnova.

"We are seeing the turning of long-term resources to short-term applications, which is not helping our economy," he told an International Monetary Fund and Bruegel think tank conference.

Venture capital firms put cash into fledgling companies in the hope of backing a winner that can be floated for a profit.

Hedge funds are the most visible aspect of short-termism, luring money from pension funds that were traditionally investors with longer-term horizons, Schmidt said.

Hedge funds invest in listed companies but compete with venture capital firms for cash.

"There is a real threat to our growth companies in Europe if we don't find ways to restore more long-term allocation," Schmidt said.

Trustees of pension funds should be alerted to what was happening otherwise in a matter of years, venture capital as an asset class may cease to exist, Schmidt added.

A MAN (EMG.L) hedge fund group official said there was more money than ever going into venture capital, and that it was in the United States, not Europe, where pension funds were putting cash into hedge funds.

The distinction between "bad" short-term and "good" long-term investing was false as pension funds wanted to diversify their holdings, a Goldman Sachs bank official added.

FRAGMENTED MARKET

The conference looked at the link between financial market integration and economic growth.

John Lipsky, first deputy managing director of the IMF, said the principal economic challenge for Europe was to raise productivity growth but its fragmented capital market made this more difficult.

Lipsky said EU financial markets relied on financing from banks that took fewer risks than their U.S. counterparts.