European stock exchanges are facing historically low initial public offering (IPO) volumes – a worrying trend that is creating a vicious circle, as European institutional capital increasingly seeks growth opportunities elsewhere, particularly in the US.
“If you actually want to IPO a company, you don’t wake up and put it in Berlin, Paris or even London. You either put it in the US or, perhaps potentially Sweden, the only European country that has actually maintained some volume of IPOs. That’s a lousy situation for Europe as a whole if we can’t attract enough capital”, says Christian Kromann, former chief executive officer of SimCorp and an executive board member of the Deutsche Börse Group, responsible for investment management solutions.
At the same time, the buy-side – the investment management industry – is facing enormous pressure, in terms of margin compression and operational efficiency, as it seeks access to new growth areas.
Europe generates world-class intellectual property thanks to a stream of top-tier scientific and engineering talent pouring out of its universities, that can compete on an equal level with the US and China. But the fragmented nature of the European financial ecosystem, combined with the scarcity in most countries (with the exception of Sweden), of large investors with a home bias impedes startups from scaling locally. As a result, promising growth companies rarely choose domestic venues for their market debuts.
As Kromann emphasises, Europe’s dilemma is not a fundamental lack of wealth – European households maintain significant aggregate savings. However, Europe suffers from a chronic inability to channel those savings away from low-yielding bank deposits and conservative debt instruments into equities, venture capital, and growth-oriented capital markets.
The contrast with the US in particular is stark. The primary retail savings destination in the US is in equites, via 401(k) pensions and mutual funds. Private assets can be financed via deep liquidity pools and global megafunds, whereas Europe has a fragmented, highly risk-averse and localised venture capital and private equity markets. The US sees IPOs as the primary choice for global tech firms to raise funds, whilst in Europe, IPOs are a secondary preference. Europe is also burdened with a high regulatory and compliance reporting framework compared with the US.
European financial leaders – including Kromann’s own CEO at Deutsche Börse Group, Stephan Leithner – have been vocal advocates for the rapid implementation of the EU’s Savings and Investments Union (SIU), the successor of the Capital Markets Union. Like its predecessor, the SIU seeks to remove cross-border friction, standardise tax and insolvency rules, and unlock private capital to fund green, digital, and technological transformations. But progress remains sluggish, while the US moves toward deregulation, widening the competitiveness gap between the two economic blocs.
Robust pension reform and expanded retail investment pools are needed to generate a steady influx of risk capital and, in turn, create a self-sustaining European economic engine
Kromann argues that creating a self-sustaining economic engine for Europe requires “activating a structural flywheel”. This would consist of robust pension reform and expanded retail investment pools to generate a steady influx of risk capital, which in turn nurtures native startups and encourages corporate leaders to keep their primary listings in European venues. Unfortunately, the trends in countries like the UK have been in the opposite direction, with the fallout from the Maxwell scandal in the UK leading to the adoption of liability-driven investment for defined benefit pension funds and a wholesale shift away from equities into bonds. Initiatives such as the UK’s Mansion House Accord are struggling to reverse this.
As the Deutsche Börse Group adapts to this environment, it has taken the route to diversify away from functioning solely as a traditional exchange operator, encompassing eight business pillars spanning the entire front-to-back capital markets value chain. The company is increasingly focusing on serving the buy-side, with buy-side clients across all businesses now generating directly 36% of the group’s net revenue.
Kromann’s area – investment management solutions, which includes Simcorp as well as the ISS STOXX index, research and ESG data business – accounts for 22% of revenues, while fund services and securities services offered by Clearstream (including custody and post-trade settlement) account for 36%. The rest is accounted for by trading and clearing operations, including with Xetra (cash equity), Eurex (derivatives), the EEX (commodities), 360T (FX) and digital assets.
Private markets and tokenisation
Kromann highlights two primary secular trends that will drive the group’s long-term strategy, as institutional investors and the asset management industry transform over the next decade: the huge shift toward private asset classes and the operational adoption of digital tokenisation.
For investment technology providers, the huge growth in private assets introduces significant operational complexity. Traditionally, financial institutions managed public securities and private illiquid assets in isolated siloes. Managing risk across fragmented holdings today requires what the industry terms a “total portfolio view”, a unified operational platform capable of aggregating risk, performance, cash workflows, and valuation vectors across both public and private asset classes in real time. Deutsche Börse addresses this through SimCorp One, its front-to-back investment management platform with real-time portfolio and risk data across every asset class in both public and private markets. “The move to private has been a massive growth driver for us because it drives an extra need for a unified platform”, says Kromann.
Digital tokenisation is also reshaping capital market infrastructure. Cryptocurrencies may be hitting the news headlines, and not in a positive way, but Kromann sees tokenisation as an architectural upgrade to the underlying market ‘plumbing’. By leveraging distributed ledger technology (DLT), asset managers and market infrastructures can remove intermediary layers, streamline money market fund communications, automate post-trade settlement, and significantly lower operational expenditure.
Behind the headlines
AI, of course, is a key market disruptor. While the headline news may give the impression that Europe is lagging dangerously behind the Silicon Valley and China in AI adoption, Kromann offers a different perspective. The US and China are leading in building foundational Large Language Models (LLMs), but the commercial value in institutional finance relies on domain-specific intellectual property (IP), proprietary data assets, and practical operational orchestration. “At Deutsche Börse Group, the IP we have on our platforms is what makes us relevant in terms of capitalising on AI – both for our clients’ benefit and for our own scalability.”
Furthermore, Kromann emphasises the emerging economic reality of AI deployment: while AI code generation and model creation drastically lower development friction, executing queries on massive parameters is computationally expensive. Enterprise leaders must carefully evaluate ROI and business cases, balancing human workflows with automated AI intelligence.
Europe, argues Kromann, does have the capability of narrowing the competitive gap with the US. To do so requires a number of steps. First of all, accelerating the SIU, by dismantling regulatory barriers to create an integrated European domestic market. This market would retain venture capital, boost listing activity locally, but also channel capital into the region’s most innovative companies and enable broad investor participation, such as through custom index capabilities and European-focused ETFs.
Secondly, policymakers and entrepreneurs should modernise the transformation of financial infrastructure. By this, Kromann means embracing digital tokenisation and private asset automation to deliver unified, total-portfolio capabilities to global institutional investors.
The final step would be to capitalise on operational AI. This means leveraging deep domain expertise and proprietary enterprise data through secure AI orchestration frameworks, converting technological capability into measurable efficiency and growth.
The Deutsche Börse Group has a key role to play, argues Kromann, by integrating institutional liquidity with efficient and trusted technology platforms. The hope is that this can help Europe stem the brain drain of talent and capital, providing a fertile domestic environment where the next generation of entrepreneurs can launch, scale, and remain.
For countries such as the UK, a key element may also be to encourage and nurture the growth of domestic investors with the desire and commitment to invest in companies that are listed locally, when the local economies cannot compare with the size of the US. Perhaps European companies also need to expand more ambitiously into megamarkets such as India and recognise China as an opportunity rather than a threat.
Joseph Mariathasan is a contributing editor to IPE, a partner of Peak Sustainability Ventures and a director of GIST Impact
