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2015/FDM1/022 Session: 6

Investment in Infrastructure

Purpose: Information Submitted by: OECD

Finance and Central Bank Deputies’ MeetingTagaytay, Philippines

5-6 March 2015

INVESTMENT IN

INFRASTRUCTURE

APEC Finance and Central Banks

Deputies' Meeting

5-6 March 2015

Sangkyom Kim

Stephen A. Lumpkin

OECD

• Institutional investors and long-term investmentwww.oecd.org/finance/lti

The OECD Project on Institutional Investors and Long-Term Investment brings together the world’s largest pension funds, insurance companies and sovereign wealth funds to promote long-term investment (LTI) such as infrastructure, addressing both potential regulatory obstacles and market failures.

• G20-OECD work on long-term financinghttp://www.oecd.org/finance/private-pensions/g20-oecd-long-term-financing.htm

The subject of long-term financing for a sustainable recovery is an increasingly important theme in the G20’s targets for future growth and employment. As part of the mandate through the G20/OECD Task Force on Long-term Investment Financing by Institutional Investors, the OECD is developing further work with the new Turkish presidency of the G20.

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OECD work on long-term

investment

LTI Project: Deliverables, main activities

and Structure

Structure: Modules

Data Collection on Institutional

Investors

Governance

Infrastructure Investment

Regulation

Emerging Markets

Financing

1. Engaging in the Policy Discussion

with G20 and APEC

2. Research/Data Collection

3. Main Events (conf./workshops)

Deliverables/Areas of Activity

• G20/OECD Taskforce on LTI

• Institutional Investors expertise (CMF & IPPC Committees, IOPS)

• Data collection national level/Reference database on Inst. Inv.

• 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

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• Increasing private sector participation in infrastructure investment : various OECD contributions

– OECD Principles for Private Sector Participation in Infrastructure

• Checklist of policy issues to consider in ensuring that citizens get the services they need at a fair cost and with viable returns to private sector partners

– Policy Framework for Investment (PFI)

• Raises issues for policy makers in policy domains that affect the business climate

• Investment Policy Reviews based on the PFI: country studies including assessment, recommendations, capacity-building and implementation

– Exchanges of experience and capacity-building (ASEAN-OECD, Latin America and Caribbean , NEPAD-OECD, SADC Investment Policy Framework)

Other OECD work on LTI – with a focus on

infrastructure

Why invest in infrastructure?

• Demand for infrastructure services is driven by the ageing assets in developed countries and the growth of developing countries

• Public sector supply of infrastructure services is constrained by limited fiscal resources or limited capacity to manage projects

• This is fuelling the pressure to make use of private sector support

Economic Fundamentals: imbalance between demand and supply

Demand Needs Supply Constraints

Government Debt to

GDP ratios %

Source: OECD Source: IMF 5

Role of Institutional Investors

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Inst. Investors AUM have grown to USD 92tr AUM in OECD

countries

Assets held by Institutional Investors in the OECD, 2001-2013 (USD Tn)

Source: OECD Global Pension Statistics, Global Insurance Statistics and

Institutional Investors’ Assets databases, and OECD estimates.

Barriers to investment in infrastructure

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What is Infrastructure?

• Direct/ indirect equity stakes in businesses that own and/or operate the physical structures and networks used to provide essential services

Infrastructure investments

Economic Infrastructure Social Infrastructure

Transport Energy & Utility Communication

•Toll Roads

•Ports

•Airports

•Rail

•GasDistribution

Storage

•ElectricityDistribution

Generation

•WaterTreatment

Distribution

•Renewables

•Cable networks

•Satellite systems

•Healthcare

•Education

•Social Housing

•Waste treatment

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Institutional Investors (Pension funds, Life Insurers, SWFs)

Policy Makers(Regulators , Governments)

OECD

ResearchUniversities,

Research Centres,

Specialized Magazines

Infrastructure Industry

Asset Managers, Private EquityFunds, Banks,

Rating agencies, Consultants, etc..

MultilateralsWB,EIB Etc

Climate Change Groups

IIGCC, P8,

The Stakeholders

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Engage the

Stakeholders

• Definition of infrastructure investment: – Sectors (Utilities?, separate clean tech /green)

– Regions (developed/ developing) /Countries)

– Stage of Development (Brownfield vs Greenfield )

• Investors use different routes to invest in infrastructure (i.e. infrastructure funds, listed companies, corporates etc.)

• New trends in asset allocation, new categories ( e.g. real or inflation –hedging assets)

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Infrastructure Project Proposal –

MonitoringData Collection Challenges

• Aggregating responses to the Checklist on Long-term Investment Financing Strategies and Institutional Investors (work in progress). Extension to APEC

o the key elements and capacities identified and presented in the G20/OECD High Level Principles of Long-Term Investment Financing by Institutional Investors

o input from Task Force meetings and written comments from Delegates and International Organizations

o an evaluation tool to help countries who would wish to self-assess their long-term investment (LTI) strategy and policy framework,

o aggregated so that no individual response will be revealed

o Interim results late March (Task Force meeting), final results expected in April.

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Recent developments

• National Strategies on Long-term Investment (e.g.

APEC)

o context of their investment strategies; main related factors,

challenges and policy priorities

o Institutional framework

o governance

o Investor eco-system

o Infrastructure

o SME financing

o Data

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Recent developments

APEC-OECD Cooperative Initiative

OECD has collaborated with APEC over the past years– Investment Policy review of APEC Economies based on the OECD

Policy Framework for Investment

– Share experiences on removing policy obstacles to infrastructure investment

– Utilize the OECD Policy Guidelines for Investment in Clean Energy Infrastructure to scale up clean energy investment in APEC economies

OECD is prepared to contribute further to APEC efforts– Collaborate with APEC economies and other IO’s to implement

– Coordinate with members when perform self-assessments against checklist developed for the “G20/OECD High-Level Principle on LTI Financing by Institutional Investors”

– Conduct analytical works to promote optimal policy framework

– Organize knowledge sharing and policy making events with APEC

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Collaboration Between APEC and OECD works on LTI

APEC-OECD Cooperative Initiative

– Life Insurance & infrastructure investment

– SWFs & infrastructure investment

– The Emerging Market perspective on Institutional Investment in Infrastructure (e.g. 1. APEC, 2. APEC emerging economies: Indonesia, Mexico, Philippines, 3. non-APEC emerging economies: India, South Africa)

– ‘Sustainable’ growth & Institutional Investment

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

– Alignment of interest Investors/Infra funds

– Other?

OECD stands ready to conduct joint research works with members and IO’s

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Proposed Research Topics: Short to Midterm Deliverables

• OECD-ADBI Institutional Investors and Long-Term

Investment Financing conference,

13th March 2015 in Tokyo, Japan

• G20/OECD High-Level Roundtable on Institutional

Investors and Long-term Investment, Singapore, May

27-28 May 2015

• OECD/Euromoney Institutional Investors Roundtable,

Paris, November 2015

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Future events