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 [email protected] Contents

1. The Institutional Investors landscape

2. Institutional Investors and Infrastructure

3. Infrastructure models

4. The OECD project on Long Term Investment

2 The Demand for Long Term Assets Institutional Investors landscape

3 Institutional investors in the 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

30.0 Investment funds USD28.8 tn Insurance companies Pension funds 25.0 Other (1) USD24.3 tn

20.0 USD20.2 tn

15.0 USD ttrillions USD

10.0

5.0

USD1.8 tn 0.0

4 Source: OECD Asset Allocation Asset Allocation of Pension funds and Insurers in selected OECD countries, 2011 As a % of total investment Institutional Investors Landscape

The recent environment New accounting and ‘Lost investment decade’ solvency rules

Investment beliefs are changing Reconsidering future Reassessing risk expected returns

New investment and risk management strategies Derisking: LDI, buy-in, buy- Long-term investing out 6 How much is invested? Infrastructure Investment

7 Infrastructure Investment Europe OECD Large Pension Funds Zilverfonds –Belgium Governmenr Pension Fund Global –Norway ATP – Denmark Demographic Reserve Fund –Poland Survey 2011.. PFA –Denmark Social Security Stabilisation Fund – Portugal Pension Reserve Fund – France BPI – Portugal AGIRC-ARRCO –France Social Security Reserve Fund –Spain National Pen Res Fund –Ireland Caja Madrid –Spain Fonchim –Italy Endesa –Spain Fonditel –Spain North America Cometa –Italy ABP -Holland Ap1-Ap6 –Sweden Ontario Municipal Employees’ Retirement System (OMERS) - Canada PFZW - Holland University Superann. Scheme (USS) -UK Canada Pension Plan Investment Board (CPPIB) - Canada PMT - Holland BT Pension Scheme - UK Ontario Teachers Pension Plan (OTPP) – Canada

Socila Security Trust Fund -USA

Australia /NZ & Asia Central & South America AustralianSuper - Australia Sustainability Guarantee Fund –Argentina Unisuper - Australia Banco do Brasil Employee Pension Fund (PREVI) - Brazil South Africa SunSuper - Australia Pension Reserve Fund – Chile Government Employees Future Fund – Australia Pension fund of South AFP Provida – Chile New Zealand Superannuation Fund – New Zealand Africa (GEPF) AFP Horizonte – Colombia Goverment Pension Investment Fund – Japan Bancomer Afore – Mexico National Pension fund – Korea IMSS Reserve – Mexico National Social Security Fund - China AFP Horizonte –Peru

..Investors for more than US$6tr AUM spread8 across regions Infrastructure Investment OECD Large Pension Funds Survey 2011: Infrastructure as an alternative asset?

Debt and Structured products Equity Cash Alternative & Other

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

9 Trends in Infrastructure OECD Large Pension Funds Survey 2011: what is infrastructure?

Tot Assets Name of the fund Country Infrastructure Investment % of total assets USD million

Unlisted Listed Fixed Total Equity Equity Income

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 Source: OECD Working Paper Trends in Large Pension Fund Investment in 10 Infrastructure Nov 2012 Infrastructure Investment

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

As % of Total Assets As % of Total Assets - USD million Infrastructure Survey* 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%

Sources: OECD Large Pension Funds Survey 2011

11 Old vs new models Infrastructure models

12 Infrastructure Investing Different options to access infrastructure.. 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

Infrastructure Investing

New models/strategies to access infrastructure

Jointly- Direct / co- Public / owned investment Private funds specialist • Club Format • Aligned • European for core infra governance market assets/brownfe (e.g. IFM in Marguerite ld deals Australia, fund Invespar in • Greenfield • Pledge funds Brazil, UK funds in high PIP) growth countries

14 Infrastructure Investing Infrastructure as an asset class Return Infrastructure Equity

Core, value added and opportunistic

Infrastructure Debt

Senior/Junior debt •absolute return or liability matching

•size of investors

•debt as real estate debt Risk 15 Infrastructure Investing Example of Infrastructure capital structure

Issues to consider for Equity Control, full risk pension funds: 20-25% 1)Is control of No control, equity Mezz characteristics important, like risk, higher 10-20% returns 2)Nominal vs. risk adjusted returns,

”No” down side, 3)Protecting down side vs. Senior debt No up side not selling up side, 55-70% Low stable returns 4)Ability to influence business development

16 An holistic approach to the barriers to long term investment THE OECD Long Term Investment Project

17 OECD LTI Project - Structure

Deliverables Structure: Modules

Data Data Collection Collection on Infrastructure Regulation Institutional Investment Investors

Policy Analysis

Emerging Governance Markets Events Financing

OECD added value

• Institutional Investors expertise • Data collection national level • Other work from OECD departments (ENV., Eco etc..) • Interaction investors/policy makers –high level

LTI Project – Partners & Participants The project’s success depends on the involvement of asset owners… • 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 OECD LTI Project – 2012-3 Events

Feb 2012

Launch Event APEC – Indonesia LAUNCH Paris August 2013 February 2012

OECD/ Euromoney OECD Forum Infrastructure financing Paris Summit May 2012 29 May 2013 Long-Term

Investment G20/OECD G20/OECD Green Growth LTI Roundtable Project Conference Paris Paris 28 May 2013 May 2012

ADB/OECD /ICC OECD/IOPS Workshop on 2013 Private Pensions bankability of PPPs Global Forum Feb 2013 Conference – Chile Oct 2012 20 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)

www.oecd.org/finance/lti 21