GLOBAL – Government support of infrastructure and other projects requiring long-term investment should "avoid crowding out" private capital, the OECD has said.
In a revised version of its high-level principles of long-term investment financing, released after governments present at the G20 in St Petersburg signed off on its release, the think tank also placed greater emphasis on projects fostering green growth, but removed any reference to the prudent person principle being essential to stewardship of patient capital.
The revised version differs noticeably from an initial draft put out to consultation in May.
At the time, it included repeated mentions of the prudent person standard as a key element of governance and risk management – replaced now with calls for a "prudent approach" and the suggestion that, where necessary, [the investor's governing body] should seek "appropriate independent advice and training".
The eight revised principles now explicitly reference the return governments should offer private capital through undertakings such as public-private partnerships, noting these should be "commensurate with the risks they take".
While both May's draft and the final version released last week reference the importance of risk-based solvency rules reflecting the suitability of long-term investment for asset-liability management, a further principle was added insisting that governments "should include consideration for the effect of this [regulatory] framework on long-term investment".
Notably, under the header of potential government-endorsed financing for long-term investment, the OECD added wording that EU member states "should avoid crowding out private investments".
Seemingly wary of promoting an interventionist approach by sovereigns, wording was also added to highlight that governments should only consider the "need" for state-backed pooling vehicles, rather than endorse them outright, and warned that any such vehicles should be developed in close cooperation with affected institutional investors.
While the principles also maintained wording that investors be "adequately regulated and supervised", a draft principle on disclosure was shortened from five points to four.
The removed point, stating that long-term investment "should be regularly monitored by the competent authorities", is no longer present in the final draft.
Commenting on the publication, OECD secretary general Angel Gurría said: "The fallout from the financial crisis has exposed the limitations of relying on traditional sources of long-term investment finance such as banks.
"Governments are looking for other sources of funds to support the long-term projects essential to a sustaining a dynamic economy.
"There is huge potential among institutional investors to support development in a range of areas such as infrastructure, new technology and small businesses."
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