OECD Project on “Institutional

Investors and Long Term

Investment”

Financial Affairs Division

Directorate for Financial and Enterprise Affairs

Long Term Investment Strategies

• “Patient” capital:

– Long-term / illiquidity premia, lower turnover, less procyclical investment strategies higher net returns, greater financial stability

• “Engaged” capital:

– Active voting policies better corporate governance

• “Productive” capital:

– Support for infrastructure development, green growth initiatives, SME finance, etc sustainable growth

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What does it mean and why does it matter?

Long Term Investment Strategy

• OECD to offer a unique approach to LT investment issues

• To engage all the stakeholders in the process especially institutional investors and policy makers

• To feed in work currently undertaken at OECD committees (e.g. DAF/ENV/DEV etc..)

• Link LT investment/Infrastructure investment to G20 Agenda

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Objectives

Long Term Investment & G20 Agenda

2011 French presidency

• High Level Panel on Infrastructure. Chaired by Prudential CEO, WB leading, recommendations due G20 meeting Nov 2011 in Cannes

• LT Investment: on subject such as regulations, Caisse des Depots willing to co-operate with OECD , to make proposals for Cannes

2012 Mexican presidency

• Government, sensible to the theme, in particular: Pension fund and infrastructure (PPPs)

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G20 Agenda 2011/2012

Long Term Investment: Related initiatives

• European Commission: Green paper on corporate governance (addresses role of institutional investors)

• World Economic Forum: project on long-term investment

• Private fora: P8, ICGN, IIGCN, SWF Initiative

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Other OECD collaboration:

Institutional Investors (Pension funds, Life Insurers, SWFs)

Policy Makers (Regulators , Governments)

OECD

Research Universities,

Research Centres,

Specialized Magazines

Asset Management

Industry Asset Managers,

Private Equity Funds, Banks,

Rating agencies, Consultants, etc..

Multilaterals UN, WB,EIB Etc

Long Term Investment: The Stakeholders

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Engage the stakeholders

About Long Term Investment

• The main institutional investors in the OECD, pension funds, insurance companies and mutual funds, held over US$65 trillion at the end of 2009.

• Emerging economies generally face an even greater opportunity to develop their institutional investors .The main institutional investors in these countries are Sovereign Wealth Funds, which held over US$4 trillion at the end of 2009.

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Long Term investors

About Long Term Investment

• Despite this generally rosy picture, these supposedly long-term institutional investors are also recurrently being labelled as “short-termist”

• These concerns have led to calls for more “responsible” and longer-term investment among institutional investors

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Long Term investors

About Long Term Investment

• More patient capital that acts in a counter-cyclical manner: given their LT liabilities, institutional investors should in principle have LT investment horizons

• An ongoing direct engagement as shareholders and consideration of environmental and other LT risks in investment

• A more active role in the financing of LT, productive activities that support sustainable growth, such as cleaner energy, infrastructure and venture capital

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Long Term investing involves..

OECD & LT Investment

• Green Growth Initiative, Corporate Governance, Private Sector Initiative, Development , Financial Education etc.

• Large amount of research produced on Pension funds, Life Insurers, SWFs

• Active engagement with pension funds regulators ( i.e. hosting IOPS)

• Recent involvement at G20 level on LT investment and Infrastructure Investment (Eurofi G20 Note)

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The OECD is actively involved in LT Investment through:

OECD & LT Investment

Events organized by the OECD on LT investment

• 7tApril 2011 Paris OECD :High Level roundtable on Long Term Investment organized by committee of Financial markets

• 25t May 2011 OECD Forum – closed doors events- on LT Investment/Infrastructure.

• 9th June 2011 Mexico - Special Roundtable of the IPPC on the contribution of insurance and private pensions to economic growth to be held in Mexico City

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The OECD is actively involved in LT Investment through:

OECD & LT Investment

Events organized by the OECD on LT investment

• October 2011 – OECD-IOPS Global Forum on Private Pensions, South Africa

• January 2012 Indonesian Seminar on Institutional Investors Location: Indonesia . Organized by CMF/IPPC in Indonesia in cooperation with Ministry of Finance, Indonesia.

• December 2012 India Seminar on Institutional Investors. Location: India . Organized by CMF/IPPC in India in cooperation with Ministry of Finance, India.

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The OECD is actively involved in LT Investment through:

OECD & LT Investment

OECD INVOLVEMENT IN OTHER LT EVENTS

• 16 June 2011 Berlin – Club of LT Investors annual conference. DSG to participate as key note speaker

• September 2011 OECD to co-organize an Event with the World Economic Forum on LT Investment

• 17/18 October 2011 Sovereign Wealth Fund Conference in Paris, organizing Columbia University/Amundi. Confirmed speakers: Stiglitz, Al Gore, Lagarde. We are discussing OECD involvement (maybe a panel) in the event. SG has been requested as key note speaker

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The OECD is actively involved in LT Investment through:

OECD & LT Investment

• On LT Investment in general: Eurofi G20 Note - Promoting longer term investment by Institutional Investors : Selected Issues and Policies DAF

• On Green investment: Role of Pension funds in financing Green Growth DAF/ENV

• Pension Fund Investment in Infrastructure: a Survey (forthcoming) SGE/Futures programme

• Pension Fund Investment in Infrastructure: Policy Actions DAF

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Recent relevant work already undertaken:

OECD & LT Investment

• Infrastructure in general: Emerging public and sovereign fund investors in Africa’s infrastructure (www.oecd.org/dataoecd/39/43/41775935.pdf), Engaging the Private Sector in African infrastructure (www.oecd.org/dataoecd/39/41/41775965.pdf)

• Water and sanitation: Stocktaking of the water and sanitation sector and private sector involvement in selected African countries (www.oecd.org/dataoecd/17/8/39679099.pdf)

• Transport: How to increase sound private investment in Africa’s road infrastructure: (www.oecd.org/dataoecd/40/23/41775855.pdf)

• Energy: Increasing Private Investment in Energy infrastructure (www.oecd.org/dataoecd/44/46/43966848.pdf) and Boosting investment in renewable energy through carbon finance (www.oecd.org/dataoecd/45/23/43966892.pdf)

• Private Sector involvement :OECD Principles for private Sector Participation in Infrastructure and Private sector Participation in Water Infrastructure: OECD Checklist for Public Action

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Relevant work already undertaken:

OECD Infrastructure Project Proposal

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• Monitoring

Seek better understanding of institutional investors flows into infrastructure

• Research Disseminate good

practices and case studies

• Infrastructure

Portal

Engage policymakers and investors to facilitate

infrastructure investment

Goals and OECD project proposals

OBJECTIVES PROJECT PROPOSALS

Infrastructure Project Proposal – Monitoring

1. Monitoring LT Institutional Investors’ Asset Allocation to Infrastructure

– Building on existing OECD Global Pensions & Insurance Statistics project

– Collect data directly from major pension funds, insurers, SWFs and other LT investors

– Define and classify infrastructure investments

– Data on assets, flows, and performance, study differences in valuation methods

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Infrastructure Project Proposal – Research

2. Research Topics

– Life Insurance & infrastructure investment

– SWFs & infrastructure investment

– The Emerging Market perspective on Institutional Investment in Infrastructure (i.e. India, Indonesia, Mexico and South Africa)

– Green growth & Institutional Investment

– Impact of Regulation on infrastructure investment (i.e. Solvency II, Basel III)

– Alignment of interest Investors/Infra funds

– Other?

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The sector is under researched, urgent need for more research

Infrastructure Project Proposal – Portal

3. Launch of Infrastructure Community Website and Forum

– Central hub to allow investors, providers, policy makers to interact

– Comments on latest news on infrastructure sector

– View/ blogs from leading industry players

– Allow for interactive asking / answering of questions

– Vehicle to provide industry feedback/news to policy makers

– Place to promote industry good practice and messages to / from policy makers

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Engage the stakeholders

Next Steps

• Build a OECD web-page on LT investment

• Undertake new research on emerging markets and life insurers

• Launch of the Infrastructure project

• OECD LT investments events to be organized (partners i.e. WEF)

• G20 Agenda France/Mexico

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