Lithuania’s institutions had billions to invest, and almost nothing at home worth buying.
Every framework a market needs was in place; the shelves were bare, and only the state could stock them.
Location / capital-markets photographyLithuania had the money and nowhere to put it. Its pension funds, insurers and asset managers held billions, but almost none of it reached the country’s own capital market: they placed only around 20% of what they managed in Lithuanian listed securities, most of that in government bonds, and barely 1% of pension money reached local equities. The rest went abroad. Lithuania sat on the Morgan Stanley Capital International (MSCI) Frontier Market index, its exchange the largest in the Baltics but small by any European measure.
The Lithuanian Ministry of Finance, supported by the European Bank for Reconstruction and Development (EBRD), asked us to find out why its own institutions would not invest at home, what stood in the way, and how to change it, before the European structural funds that had long carried the economy began to taper.
- Market & landscape analysis
- Regulatory & legal analysis
- Benchmarking
- Framework development
- Investment risk analysis
- Liquidity analysis
- Interviewing
- Surveys & questionnaires
- Stakeholder validation
- Workshop facilitation
- Desk research
- Recommendation & roadmap design
- Legislative & regulatory drafting
- Synthesis & report writing
- Solution & mechanism design
Client
Supported byA market that looked complete. And was empty.
1 Across pensions, insurance and asset management; market data as at end-2017.
It looked like reluctance. It was an empty shelf.
On paper Lithuania had a framework for almost every asset class, so nothing seemed to be missing. Look closer and there was next to nothing to buy. The entire free float of the equity market was €590 million; the state-owned enterprises that dominated it floated an average of 6% of their shares; there was exactly one listed corporate bond, and the government issued only short, plain-vanilla debt. The demand side was boxed in too, by pension rules that capped how much a fund could hold in any one local name.
Behind all of it sat a state that owned the companies it would not float, issued the bonds it would not vary, wrote the rules that constrained the buyers, and kept the investors it needed at arm’s length. The capital was there and the appetite was there; the shelves were bare because the one actor who could stock them, the state, had not. The task was never to talk institutions into investing. It was to get the government to build something worth investing in.
What we did differently
We didn’t trust the paper picture.
On paper Lithuania had every asset class an investor could want, and a lesser review would have stopped there. We built the availability matrix and then went behind it, one asset class at a time, asking not “does the framework exist?” but “is there anything actually there to buy?” The answer, again and again, was no: a market that looked complete offered, in practice, almost nothing an institution could buy at scale. Naming that gap precisely is what turned a reassuring picture into an actionable one.
We let the investors score the fixes.
It is easy to hand a government a list of recommendations. It is harder to prove they would work. So we went back to the institutions twice, once to find the impediments and once, after we had drafted the fixes, to ask a blunt question: if we changed this, would you actually invest more, and by how much? Every recommendation was then ranked by the people who would have to act on it, weighted toward the investors themselves, so the priority order was the market’s, not ours.
We aimed the answer at the state, because the state was the problem.
The comfortable finding would have been a market that needed nudging. What we found was a government that owned the companies it would not float, issued the only bonds on offer and wrote the rules that boxed the buyers in, then kept those buyers at arm’s length when it changed the rules that mattered most to them. So the recommendations were pointed where the levers actually were, at the government, and we said plainly that the biggest single move, floating shares in the state-owned enterprises, was theirs alone to make.
We wrote it to be enacted, not admired.
A recommendation a ministry cannot act on is decoration. So each of ours named the exact law to change, gave the drafting guidance to change it, and carried a named owner and a timeline in the roadmap. Where another market had already solved the same problem, we brought its working model to copy, the municipal borrowing structures from Sweden and the United Kingdom among them. The point was a plan the government could pick up and run.
What we delivered
The problem had two halves that rarely sit in one place. One was knowing how a functioning capital market is actually built: the instruments, the rules, the sequence, drawn from markets that had already done it. The other was knowing Lithuanian law and the Lithuanian market well enough to say precisely which provision had to change, and whether it could. A recommendation that was internationally sound but locally unenactable would have been useless, and so would local knowledge with nothing to aim at. So the team was built as exactly that pair.
Thierry Clarke led as the international consultant, and his was the international half of the problem: benchmarking Lithuania against markets that already worked, designing the instruments and reforms that could fill the empty shelf, and carrying the diagnosis and the writing. He came to it as a capital-markets development specialist who had spent years on this kind of market-building work across the region.
The local half we did not attempt alone. We partnered with Sorainen, the leading law firm across the Baltic states, whose lawyers held the Lithuanian legal and regulatory ground from the inside, tested what was genuinely possible under Lithuanian law, and pinned each reform to the precise provision it would need. International design on one side and local enactability on the other is what let the recommendations land as something the Ministry could pick up, rather than a foreign template dropped on an unfamiliar market.
Thierry Clarke
