New models for Infrastructure Financing : the Role of

Institutional Investors 6th Annual Meeting of senior PPP officials, OECD, Paris - April 15th 2013

Raffaele Della Croce

Lead Manager - Long Term Investment project

Directorate for Financial and Enterprise Affairs

OECD raffaele.dellacroce@oecd.org

1. The Institutional Investors landscape

2. Institutional Investors and Infrastructure

3. Infrastructure models

4. The OECD project on Long Term Investment

Contents

2

Institutional Investors

landscape

The Demand for Long Term Assets

3

Institutional investors in the OECD

4

0.0

5.0

10.0

15.0

20.0

25.0

30.0

US

D t

tril

lio

ns

Investment funds

Insurance companies

Pension funds

Other (1)

USD28.8 tn

USD24.3 tn

USD20.2 tn

USD1.8 tn

Source: OECD

Inst Investors AUM have been growing to USD 71tr AUM in OECD

countries

Assets held by Institutional Investors in the OECD area, 1995-2011

Asset Allocation Asset Allocation of Pension funds and Insurers in selected

OECD countries, 2011 As a % of total investment

Institutional Investors Landscape

6

New investment and risk management strategies

Derisking: LDI, buy-in, buy-out

Long-term investing

Investment beliefs are changing

Reassessing risk Reconsidering future

expected returns

The recent environment

‘Lost investment decade’ New accounting and

solvency rules

Infrastructure Investment

How much is invested?

7

Australia /NZ & Asia

AustralianSuper - Australia

Unisuper - Australia

SunSuper - Australia

Future Fund – Australia

New Zealand Superannuation Fund – New Zealand

Goverment Pension Investment Fund – Japan

National Pension fund – Korea

National Social Security Fund - China

North America

Ontario Municipal Employees’ Retirement System (OMERS) - Canada

Canada Pension Plan Investment Board (CPPIB) - Canada

Ontario Teachers Pension Plan (OTPP) – Canada

Socila Security Trust Fund -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

8

Infrastructure Investment

..Investors for more than US$6tr AUM spread

across regions

South Africa Government Employees Pension fund of South Africa (GEPF)

OECD Large Pension Funds

Survey 2011..

Infrastructure Investment

9

OECD Large Pension Funds Survey 2011: Infrastructure as

an alternative asset?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Debt and Structured products Equity Cash Alternative & Other

10

OECD Large Pension Funds Survey 2011: what is infrastructure?

Name of the fund CountryTot Assets

USD million

Unlisted

Equity

Listed

Equity

Fixed

IncomeTotal

OMERS Canada 52,385 15.5 0.0 0.0 15.5

ABP Netherlands 312,257 0.3 n.a. n.a. 0.3

Future Fund Australia 65,824 4.1 na na 4.1

GEPF South Africa 138,572 0.1 n.a. 0.2 0.3

Previ Brasil 88,847 0.0 13.5 n.a. 13.5

AFP Provida Chile 40,474 0.0 0.2 1.4 1.5

Afore Bancomer Mexico 16,430 0.0 2.1 0.5 2.6

COMETA Italy 7,484 0.0 2.2 1.5 3.7

AFP Horizonte Perú 7,162 0.3 3.0 7.4 10.7

Banco BPI Portugal 3,114 0.0 10.2 10.6 20.0

Infrastructure Investment % of total assets

Source: OECD Working Paper Trends in Large Pension Fund Investment in Infrastructure Nov 2012

Trends in Infrastructure

Infrastructure Investment

11

Sources: OECD Large Pension Funds Survey 2011

USD millionAs % of Total Assets

Infrastructure Survey*

As % of Total Assets -

Complete Survey**

Unlisted Equity 37,961 2.6% 0.6%

Fixed Income 3,920 0.3% 0.1%

Total Infrastructure Investment 41,881 2.9% 0.7%

OECD Large Pension Funds Survey 2011: how much is invested?

Infrastructure models

Old vs new models

12

Infrastructure Investing

Equity

• Direct/Co-Investments

• Listed Funds

• Unlisted funds (Standard model vs new model)

• Funds of funds

Debt

• Wrapped vs unwrapped bonds

• Partnerships with banks

• Mezzanine structures

• Debt funds

13

Different options to access infrastructure..

Infrastructure Investing

14

Direct / co-investment

• Club Format for core infra assets/brownfeld deals

• Pledge funds

Jointly-owned

specialist • Aligned

governance (e.g. IFM in Australia, Invespar in Brazil, UK PIP)

Public / Private funds

• European market Marguerite fund

• Greenfield funds in high growth countries

New models/strategies to access infrastructure

Infrastructure Investing

15

Risk

Return

Core, value added

and opportunistic

Senior/Junior debt

Infrastructure Equity

Infrastructure Debt

Infrastructure as an asset class

•absolute return or

liability matching

•size of investors

•debt as real estate

debt

16

Infrastructure Investing

Equity 20-25%

Senior debt

55-70%

Mezz 10-20%

”No” down side,

No up side

Low stable

returns

No control, equity

like risk, higher

returns

Control, full risk Issues to consider for

pension funds:

1)Is control of

characteristics important,

2)Nominal vs. risk adjusted

returns,

3)Protecting down side vs.

not selling up side,

4)Ability to influence

business development

Example of Infrastructure capital structure

THE OECD Long Term

Investment Project

An holistic approach to the barriers to long term investment

17

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

• Data collection national level

• Other work from OECD departments (ENV., Eco etc..)

• Interaction investors/policy makers –high level

OECD added value

LTI Project – Partners & Participants

• Partners: APG, Canadian Pension Plan Investment Board, Long-Term Investors Club (members of the project Steering Committee)

• Participants: APG, ATP, BT, Calpers, CDC, CIC, CPPIB, Future Fund, NZ Superannnuation Fund, GIC, Norway Gov. Pension Fund – Global, PensionDanmark, PGGM, Previ, South Africa GEPF, AustraliaSuper, TIAA-CREFF, UN, USS…

19

The project’s success depends on the involvement of asset

owners…

Long-Term Investment

Project

OECD LTI Project – 2012-3 Events

20

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

LTI Project – G20 Milestones 2012-3

• G20/OECD Note on Pension Fund Financing for Green Infrastructure and Initiatives (June 2012)

• Principles on Long-Term Investment by Institutional Investors (Sep 2013)

• Questionnaire on large pension funds (Sep 2013)

• Report on government and market incentives for LTI / infrastructure investment (2013)

21 www.oecd.org/finance/lti