OECD: Pension Funds Investment In Infrastructure: A Survey

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The financial crisis has aggravated the infrastructure gap further reducing the scope for public investment, while at the same time affecting traditional sources of private capital. Institutional Investors such as pension funds may therefore play a more active role in bridging the infrastructure gap.

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The financial crisis has aggravated the infrastructure gap further reducing the scope for public investment, while at the same time affecting traditional sources of private capital. Institutional Investors such as pension funds may therefore play a more active role in bridging the infrastructure gap.

The OECD report on Infrastructure to 2030 (volumes 1 and 2) published in 2006/2007, estimated global infrastructure requirements to 2030 to be in the order of US$50 tn. The International Energy Agency also estimated that adapting to and mitigating the effects of climate change over the next 40 years to 2050 will require around US$45 tn or around US$1 tn a year.

Such levels of investment cannot be financed by traditional sources of public finance alone. The impact of the financial crisis has exacerbated the situation, further reducing the scope for public investment in infrastructure within government budgets. The result has been a widespread recognition of a significant infrastructure gap and the need for greater recourse to private sector finance.

At the same time traditional sources of private capital such as banks, have restrained credit growth and may be further constrained in the coming years when new regulations (e.g. Basel III) take effect.

Institutional investors – pension funds, insurance companies and mutual funds – have been called to play a more active role in bridging the infrastructure gap. With over US$65 tn in assets held at the end of 2009 in OECD countries alone, institutional investors could be key sources of capital, financing long-term, productive activities that support sustainable growth, such as green energy and infrastructure projects.