If there is one question that is currently on the infrastructure market’s lips is how to get pension funds to invest in infrastructure massively.
With this question on everyone's minds, Infrastructure Investor: Europe 2010 opened with a keynote from Robbert Coomans, an adviser to the board of directors at the Netherlands’ APG Asset management, one of the largest pension fund managers in the world with €240 billion of pension assets under management.
While the economic downturn has served as a catalyst for privatisations and despite the overwhelming need for infrastructure investment, Coomans warns that “my job as an asset manager is to provide pensions at a reasonable price. We can’t invest in infrastructure just because it’s good for the economy, as governments want.”
That means projects have to be worthwhile in and of themselves, but it also means that governments have to make it worth pensions’ time to look into their markets – something that can only be achieved if governments launch a robust pipeline of projects, Coomans said.
The same terms apply to another question that has puzzled the public and private infrastructure markets alike: how to get pension funds to step-in for cash-strapped banks and become long-term debt providers to infrastructure projects in the wake of the financial crisis? The answer, Coomans argues, is not to forget that pension funds invest in infrastructure to match perhaps the biggest liability they face: inflation.
“We are interested in debt financing because infrastructure assets have an inflation component,” he says. “As such, we try to talk to managers to provide them with inflation-linked debt. But they are only starting to accept inflation-linked debt now and that’s because we are the only ones that can lend for 20 years. Two or three years ago, when bank financing was plentiful, managers weren’t interested.”
To successfully hedge against inflation, however, infrastructure investments have to be able to provide stable cash flows, an area of project financing Coomans would like general partners to pay more attention to:
“In infrastructure, [projects’] cash-flows should be used as a barometer and not so much their internal rate of return,” Coomans stresses. “ I think more emphasis has to be put on cash-flows and maybe performance fees should start being paid against them,” he muses.
To find out more about what Robbert Coomans and APG Asset Management want from the infrastructure asset class, be sure to check our exclusive insider interview with Coomans' in this month’s issue of Infrastructure Investor magazine.