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Impact Investing

IPE special report May 2018

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Room for pension fund investment in EU project bonds, says EIB

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The European Union’s next project bond issuance could offer funding to an undisclosed project in the UK, according to the director general of the European Investment Bank (EIB).

In 2010, the president of the European Commission Jose Manuel Barroso announced plans to issue project bonds to attract institutional investors to long-term investment projects.

The first project bond was launched in October, offering funding for a Castor gas storage project in Spain.

According to Bertrand de Mazières, director general of the EIB, the bond issue, with a volume of €1.4bn and a 2034 maturity, was oversubscribed and attracted a “very strong” response from investors.

“The dominant buyers were insurers, so there is room for pension funds to scale up,” he told delegates at the PensionsEurope conference in Frankfurt.

He hinted that the next project bond might be for a project in the UK but did not give any further details.

Pierre Bollon, vice chair at PensionsEurope in charge of long-term investments, noted the association was currently working on the proposed regulation on long-term financing and suggested it should be made “less rigid and hence more attractive, especially for small and medium-sized occupational pension schemes”.

This week the European parliament issued a draft legislative proposal on the European long-term investment funds (ELTIF) proposals, backing the Commission’s suggestion to create such funds under the AIFM directive.

According to figures collected by the EIB around 1% of assets held by sovereign wealth funds, pension funds and insurers globally was currently invested in infrastructure.

At the conference, the UK’s Pensions Infrastructure Platform (PIP) received a positive reception, with a representative of the Belgian pension fund association in the audience asking Judith Donnelly, working at the UK infrastructure project, whether it was also open to foreign investors.

Donnelly noted the PIP currently had ten of the largest UK pension schemes as committed investors, with an initial target capital raise of £1bn.

The fund’s founding investors include the British Airways and the Railways pension funds, the Pension Protection Fund (PPF), the London Pension Fund Authority (LPFA), BAE Systems, The West Midlands Pension Fund and the pension fund of BT.

“PIP would have no objection in principle to include further investors if the existing investors cannot meet the target size but we do not want to expand the investment target,” she explained.

Matti Leppälä, director general of PensionsEurope, pointed out while the association generally “welcomed the initiative on investments in growth and employment” they should any commitments should only be made “for the right reasons”.

“Overall, the total costs may be too high and increased capital requirements may altogether prevent these envisaged investments,” he said, referencing the impact of future changes to solvency requirements for pension funds.

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