INSTRUMENTS AND INCENTIVES TO ATTRACT INSTITUTIONAL INVESTORS IN INFRASTRUCTURE 7 th Annual Meeting of Senior PPP Officials February 17th 2014 Raffaele Della Croce Lead Manager, LTI Project, Financial Affairs Division - OECD [email protected]
OECD, 7th Meeting on Public-Private Partnerships - Raffaele DELLA CROCE
May 07, 2015
This presentation by Raffaele DELLA CROCE was made at the 7th Meeting on Public-Private Partnerships held on 17-18 February 2014. Find more information at http://www.oecd.org/gov/budgeting/ppp.htm
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
INSTRUMENTS AND INCENTIVES TO ATTRACT INSTITUTIONAL INVESTORS
IN INFRASTRUCTURE
7th Annual Meeting of Senior PPP Officials February 17th 2014
Raffaele Della Croce Lead Manager, LTI Project, Financial Affairs Division - OECD [email protected]
Institutional investors Landscape
2 Source: OECD
Inst Inv AUM have been growing to USD 83tr AUM in OECD countries
Assets held by Institutional Investors in the OECD area, 1995-2012
Presenter
Presentation Notes
In 2012, the primary institutional investors in the OECD – pension funds, public pension reserve funds (PPRFs), mutual funds, and insurance companies – held USD 83.2 trillion in assets (Figure 1). In that same year, the combined GDP of the OECD countries was USD 46.1 trillion. As economic actors, institutional investors play a key role in channelling savings into productive long-term investments, and clearly, the amount of capital deployed in the OECD is substantial. This function has become increasingly important during a time period in which the role of traditional financial intermediaries such as banks and their capacity to provide long-term financing is changing in the post credit crisis period.
Asia - Australia &NZ National Social Security Fund - China Goverment Pension Investment Fund – Japan Pension Fund Association - Japan National Pension fund – Korea AustralianSuper – Australia SunSuper - Australia Future Fund – Australia New Zealand Superannuation Fund – New Zealand
North America Ontario Municipal Employees’ Retirement System (OMERS) - Canada Canada Pension Plan Investment Board (CPPIB) - Canada Ontario Teachers Pension Plan (OTPP) – Canada Social Security Trust Fund –USA Calpers - USA OPERS- USA PRIM -USA
Europe Zilverfonds –Belgium ATP – Denmark PFA –Denmark Pension Reserve Fund – France AGIRC-ARRCO –France National Pen Res Fund –Ireland Fonchim –Italy Cometa –Italy ABP -Holland PFZW - Holland PMT - Holland
Central & South America Sustainability Guarantee Fund –Argentina Banco do Brasil Employee Pension Fund (PREVI) - Brazil Pension Reserve Fund – Chile AFP Provida – Chile AFP Horizonte – Colombia Bancomer Afore – Mexico IMSS Reserve – Mexico AFP Horizonte –Peru
Governmenr Pension Fund Global –Norway Demographic Reserve Fund –Poland Social Security Stabilisation Fund – Portugal BPI – Portugal Social Security Reserve Fund –Spain Caja Madrid –Spain Endesa –Spain Fonditel –Spain Ap1-Ap6 –Sweden University Superann. Scheme (USS) -UK BT Pension Scheme - UK
3
Pension Funds’ LTI: Survey Oct 2013
..Investors for more than US$9tr AUM spread across regions
Africa Nigeria Government Employees Pension fund of South Africa (GEPF)
Large Pension Funds Survey 2013..
Presenter
Presentation Notes
The information in the Survey Report on Pension Funds’ Long-Term Investments [see DAF/CMF(2013)18] is designed to illuminate the role that large institutional investors can play in providing a source of stable long-term capital. The survey reviewed trends in assets and asset allocation by 86 large pension funds and Public Pension Reserve Funds (PPRFs), which in total managed nearly USD 10 trillion in assets, more than one third of the total worldwide assets held by this class of institutional investors. Information was provided through the survey for 69 out of the 86 investors. Data for the 17 remaining funds came from publicly available sources. Pension fund assets in G20 countries South Africa and Brazil, amounted to USD 143.7 billion for GEPF and USD 81.4 billion for Previ, making them the largest funds in their respective continent. The survey also shows PPRFs in five major non-OECD countries that are G20 members: Argentina, China, India, Indonesia and Russia.
Pension funds Asset Allocation
4
Average asset allocation of Large Pension Funds (LPFs) and Public Pension Reserve Funds (PPRFs), 2012
Presenter
Presentation Notes
The simple average portfolio for the pension funds surveyed shows that as of December 2012, 55.6% of total assets were invested in fixed income and cash, 28.1% in equity, and 16.3% in alternative investments (see Figure 2). Bonds and cash represented the majority of assets for funds based in Italy, Spain and Russia. Pension funds based in Australia, South Africa, the United Kingdom and the United States had the largest allocations to listed equities, comprising the largest portion of portfolios. The simple average portfolio for the PPRFs in selected countries shows that 60.2% of assets were invested in fixed income and cash, 27.3% in listed equities and 12.5% in alternative investments (see Figure 2). This figure contains a diverse set of funds and allocations. In Belgium and the United States, 100% of the portfolio is invested in domestic fixed income, while for the Canadian and Australian funds, the fixed income and cash allocation is below 35%. The Australian PPRF also has the largest allocation to alternatives at 36% of total assets. Some funds also invest in infrastructure assets, mainly through listed and unlisted equity. Both pension funds and PPRFs exhibited similar asset allocation trends: decreasing equities, increasing fixed income and increasing alternatives/other over the last two years. Based on a group of 46 pension funds that populated data in both the 2010 and 2012 time periods, there is evidence that allocations to alternative asset classes, such as infrastructure and private equity, are slowly increasing.
Investor Asset Allocation for Infrastructure
5
Different ways to access Infrastructure
6
Infrastructure Risk/Reward Profile
7
Barriers to Infrastructure Investment
Source OECD
Problems with government support for infrastructure projects
• Lack of political commitment over the long-term • Lack of infrastructure project pipeline • Fragmentation of the market among different levels of
government • Regulatory instability • High bidding costs
Lack of investor capability
• Lack of expertise in the infrastructure sector • Problem of scale of pension funds • Regulatory barriers • Short-termism of investors
Problems with investment conditions
• Negative perception of the value of infrastructure investments
• Lack of transparency in the infrastructure sector • Mis-alignment of interests between infrastructure funds
and pension funds • Shortage of data on infrastructure projects
Presenter
Presentation Notes
In order to attract pension fund investment in infrastructure and guarantee the success and sustainability of the investment in the long term, several barriers to investment need to be addressed, some specific to pension funds other affecting more in general all investors. Infrastructure investing offers different characteristics from other asset classes which could represent barriers to entry to potential investors. High upfront cost, lack of liquidity and long asset life require significant scale and dedicated resources to understand infrastructure projects, that many investors are lacking. These characteristics imply that infrastructure investment – at least in the forms it is currently offered –may not be a suitable proposition for all investors. Barriers should be read in the context of each different country, however among the main barriers to pension fund investment in infrastructure:
OECD LONG TERM INVESTMENT PROJECT
9
OECD LTI Project
• “Patient”,“Engaged”,“Productive” capital
• LTI investors/LT assets
• NB: Short Term not bad • OECD, APEC, G20 relevance
10
What does long-term investment mean and why does it matter?
Presenter
Presentation Notes
Objectives Identify obstacles to and incentives for long-term investment by institutional investors Evaluate extent of long-term investing, identify examples, and improve knowledge transfer Promote productive dialogue between governments and investors Provide policy recommendations
OECD LTI Project - Structure
Structure: Modules
Data Collection on Institutional
Investors
Governance
Infrastructure Investment Regulation
Emerging Markets
Financing
Data Collection
Policy Analysis
Events
Deliverables
• Institutional Investors expertise (Committees, IOPS) • Data collection national level • Other work from OECD Directorates/divisions (ENV, GOV, DEV etc..) • Network of stakeholders (i.e. Institutional investors, Asset managers,
Universities, Investors Group)
OECD added value
11
Long-Term Investment
Project
OECD LTI Project – 2012-3 Events
12
OECD Forum
Paris May 2012
G20/OECD Green Growth
Conference Paris
May 2012
APEC – Indonesia
August 2013
ADB/OECD /ICC Workshop on
bankability of PPPs Feb 2013
OECD/IOPS Private Pensions
Global Forum Conference – Chile
Oct 2012
Launch Event
Paris February 2012
G20/OECD LTI Roundtable
Paris 28 May 2013
Feb 2012 LAUNCH
2013
OECD/ Euromoney
Infrastructure financing Summit
29 May 2013
OECD/APG/RiskLab LTI and Regulation
Amsterdam Feb 2013
Presenter
Presentation Notes
Meetings 2012 9th February -OECD Pension Forum - Paris April/June Indonesia Seminar End 2012 India Seminar Green Invest roundtables (each quarter??) Green Agenda April 25th, 26th Clean Energy Ministerial London 22- 25 May 2012 OECD Forum - Green Growth Conference – Paris 20 / 22 June UN Rio Convention -Brazil December 2012 - COP 18 - Doha Qatar Two types of events: a) operational level events engaging Institutional Investors and policy makers (Governments, Regulators etc) on LTI issues (OECD events or in partnership with other organizations). b) high-level policy events to present provisional recommendations and support final recommendations.
• Implementation of High Level Principles: priority areas for 2014
• Analysis of Government and Market Based Instruments and incentives for LTI
• OECD LTI project research • Network of Investors
Next Steps
www.oecd.org/finance/lti - OECD long-term investment project 13
Presenter
Presentation Notes
High-Level Principles of Long-Term Investment Financing by Institutional Investors (see section 3.2) Leaders of G20 countries, at their meeting in St Petersburg in September 2013, endorsing the G20/OECD High-Level Principles on Long-Term Investment Financing by Institutional Investors, asked their Finance Ministers and Central Bank Governors to identify approaches to their implementation working with the OECD and other interested participants by the next Leaders’ Summit, in November 2014 in Brisbane, Australia. Questions for Delegates: What are the priorities areas of work delegates think the OECD should focus its research on? In which of the eight principles below should we develop approaches to their implementation? Survey report on pension funds’ long-term investment (see section 3.3) This year’s survey results – presented to the G20 on 11 October 2013 – show still a low level of investment in infrastructure on average among the surveyed funds, despite evidence of a growing interest by pension fund managers. This seems to confirm the importance of barriers and disincentives which limit such investments and the relevance and need for policymakers to address them. The survey showed also that data on long-term investment – and in particular infrastructure investment – by pension funds is readily available from the funds themselves. However, the methodologies and definitions used to classify such investments can differ widely, rendering comparisons and aggregation difficult. There is clearly a need to standardize definitions and classifications to facilitate international monitoring of long-term investment. Questions for Delegates: Are the findings of the survey in line with the experience of delegate countries? Are you collecting similar data at national level? How to improve/ameliorate the survey? Analysis of different government and market-based instruments and incentives used for stimulating the financing of long-term investment In February 2013 the G20 mandated the OECD, together with other relevant IOs, to provide analysis of different government and market-based instruments and incentives used for stimulating the financing of long-term investment. The final report to be delivered in 2014, will address three main areas of long-term investment financing: infrastructure investment by institutional investors, corporate financing (including issues related to corporate governance) and bank lending (and related business models issues). Research for the paper will draw heavily on existing literature, new research already undertaken as part of the OECD LTI project. A survey of relevant initiatives to attract long-term investment in OECD and G20 countries will be included in the final report. Questions for Delegates: What have been the recent major initiatives to attract long-term investment in delegate countries? In what ways would delegates be willing to support this work? (e.g. through sharing of own work in the area, joint drafting of papers or other collaborative efforts, through the provision of specific data or financial support)? It may be noted that a survey will soon be shared with delegates for comments before official circulation.
Related Documents
