German pension funds and insurers are calling for changes to investment rules and a stronger pipeline of investable projects to encourage greater institutional investment in domestic infrastructure.
Lutz Horstick, chief investment officer of the €17bn Ärzteversorgung Westfalen-Lippe (ÄVWL), the pension fund for doctors in the German region of Westphalia-Lippe, said it “would make sense” to raise the 5% infrastructure investment limit.
He questioned “why infrastructure should not be as privileged as real estate”, given that the investment limit for real estate stands at 25%.
A combined real assets quota covering both real estate and infrastructure “might be an option to improve things”, Horstick said.
Germany’s financial supervisory authority BaFin has yet to publish its updated investment circular (Kapitalanlagerundschreiben), which is expected to provide further guidance on eligible infrastructure investments.
“Investors have not yet the clarity on what BaFin might see as infrastructure falling into the quota,” Horstick said.
Speaking at an infrastructure conference organised by Initiative Deutsche Infrastruktur (IDI) on 3 November, Horstick identified “five challenges” to unlocking domestic infrastructure investment, including accelerating construction and capital deployment, developing a pipeline of investable projects, addressing the country’s renovation backlog and improving municipal financing.
He said German pension funds were ready to deploy capital to support infrastructure upgrades and investment at municipal level.
Jens Burkhards, head of portfolio management loans and securities at ÄVWL, told the conference that political stability and returns of 4-4.5% on “low-risk” public-private partnerships (PPPs) were also important conditions for the scheme to increase its domestic infrastructure allocations.
Tim Ockenga, head of investments at German insurance association GDV, highlighted what he described as a “negative home bias” among German insurers.
German insurers allocate 6% of their combined €1.9trn in assets to infrastructure, but much of that capital is invested in countries such as Spain, France and Italy rather than Germany, he said.
“The reason for this is that there are not enough investable projects,” Ockenga said.
He called for private institutional capital to be integrated “more effectively and to a greater extent” into Germany’s €500bn infrastructure and climate neutrality special fund (Sondervermögen), arguing that public funding alone “won’t be sufficient” to meet the country’s investment needs.
Ockenga also advocated a stronger infrastructure focus within the proposed Deutschlandfonds, alongside a clear commitment to PPPs and the development of an investable project pipeline.
Christian Puschmann, head of Germany and Austria at Neuberger Berman, said the asset manager “cannot currently find” suitable domestic infrastructure investments for pension funds and insurers.
Institutional investors’ willingness to commit capital was “extremely high”, but available projects were often too small to attract large investors, he said.
Puschmann suggested that tax incentives for investing private pension savings in domestic infrastructure could help mobilise additional capital.
The proposals come as Germany pursues reforms to its private, statutory and occupational pension systems, with policymakers seeking to mobilise more long-term capital for investment.
