GERMANY – Pension funds are “natural” investors in German road-building projects, according to a new report by Deutsche Bank – though it admits it may be hard to attract international institutions.
It said institutions such as pension funds, life insurers and local Pensionskassen are “prime candidates” for combining their long-term financial commitments with the long-term nature of infrastructure investments.
“In view of the weak state of the capital markets, such investors are currently on the lookout for investments other than plain vanilla deals,” the report states – citing portfolio shifts to hedge funds and private equity.
“Investments in suitable transport infrastructure offer low yield volatility and are less vulnerable than other investments to economic cycles,” Deutsche explains. It says such investments are “robust, low-volatility, defensive and long term” with attractive yields.
But it saw a problem attracting international institutional investors due to the fact that few privately financed road projected have been completed in Germany. And the market needed to become more liquid.
Deutsche says planned road infrastructure projects in Germany could be “lucrative” for institutions and that it expects to sees growing interest from pension funds and life insurers. They were expected to be attracted by the so-called “A-model”, based around a toll on heavy goods vehicles taking autobahns.
And private investors may also be encouraged to participate, Deutsche adds. “Even though there are ‘natural’ categories of institutional investors such as pension funds or life insurers, private investors may also play a role in the medium term.”
It said private investors could be encouraged by closed-end or listed funds.
The report says German road expansion has fallen behind traffic growth – and that this is set to worsen with Germany’s geographic position in the expanding European Union.