Tapping the private purse to pay for transport and water needs

In Facilitating European Infrastructure Investing, published by the European Financial Services Round Table, European insurers and bankers propose ways to render infrastructure a more accessible asset class for institutional investors.

The Economist article, "The trillion-dollar gap," points out that global spending on transport, power, water and communications is a whopping USD 1 trillion less than what it should be. The paper states that given cheap borrowing rates and relatively high unemployment, it makes no sense that public infrastructure spending remains at such a low ebb, both in developing and developed countries. 

Institutional investors hold the key

According to the Economist, the challenge is not only tapping into public money for the necessary investment but also accessing the large private capital base. The USD 50 trillion or so managed by institutional investors such as insurance companies could provide a solution. In addition currently less than one percent of this amount is earmarked for infrastructure investment.

Facilitating European Infrastructure Investing delves into the issue. The report, published by the European Financial Services Round Table (EFR), explains the latest initiative set up by its members to "help infrastructure become a more accessible asset class for institutional sources of capital in Europe."  The EFR is a body of top executives from the insurance and banking sectors chaired by Swiss Re's Walter Kielholz, Chairman of the Board of Directors.

Swiss Re at the forefront of policy call for increased investment

One of our major strategic priorities is to help shape the policy debate around how best the financial sector in Europe can generate growth, promote long-term investment and boost employment opportunities.

We believe this can happen by joining forces with other like-minded stakeholders in a call for increased spending on public-sector infrastructure projects and the right framework to create a tradable asset class. Facilitating European Infrastructure Investing is a case in point.

A concrete plan for action

Among the proposals made by the authors are a harmonized infrastructure capital market, including a pan-European framework for project due diligence and disclosure. This, the report says, would go a long way towards making infrastructure a more attractive proposition for long-term investors. Unfortunately, political and regulatory uncertainties remain the major obstacles for further investment.

A tradable asset class could mitigate some of the associated risks and allow for more private investment. The report's policy recommendations also highlight the significance of public-private collaboration.

The publication points out that the success of the initiative will depend to a large extent on "greater transparency and harmonisation of project pipelines, structures, financing and performance. There also needs to be further availability of best practices and benchmarking / performance data to increase the supply of projects and public and private investor confidence in the sector." Without a doubt, the journey ahead is still significant – but so are its potential benefits.


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