Pension funds may finance public infrastructure

The government's renewable energy policies have encouraged institutional investors to consider financing new infrastructure projects. Image: Africa Green Media

Funding infrastructure through pension money has been a long-held wish of the government‚ which has periodically threatened legislating for investment in prescribed asset classes unless funds do so voluntarily. It is also generally acknowledged that the government will be unable to fund its ambitious infrastructure programme out of debt alone.

At the annual Association for Savings and Investment South Africa (Asisa) assembly in Cape Town‚ fund managers‚ life assurers and bankers expressed enthusiasm for the government's Renewable Energy Independent Producers Programme (Reipp)‚ saying it provided a world-class model for private sector investment in public infrastructure.

By giving institutional investors a clear line of sight of the risks and returns and providing the necessary certainty through complex contracting‚ the Reipp had opened the way for deals in other sectors‚ they said.

National Treasury capital projects unit Chief Director Nicky Prins‚ who introduced many of the investors to the Reipp programme through a task team on infrastructure funding with Asisa‚ told the forum there had been "fundamental change" in the past year.

Reipp has been a catalyst

"The biggest catalyst seems to have been the Reipp‚ which has attracted enough of the industry to get involved. There is a fundamental change‚ so that if a fund manager is not thinking about investing in infrastructure‚ then they are probably not aware of what their counterparts in the industry are doing‚" she said.

Nedbank Capital's Mike Peo says that institutional investors must play a leading role in financing infrastructure development. Image: Twitter

The Reipp will see the private sector fund 66 transactions to a value of R150bn. While banks and some life assurers provided the initial debt‚ fund asset managers are showing a growing interest in buying the investment in projects.

Prins said the key to success was the government' s willingness to present contracting and financing arrangements in a language and business process the private sector understood.

"The state wants a square deal in financing. How the private sector helps in coming up with arrangements where everybody's interests are looked after will be key to how we open more doors beyond the energy sector," Prins said.

Mike Peo‚ head of Infrastructure‚ Energy and Telecommunications at Nedbank Capital‚ said the Reipp set a world-class standard.

"The programme was packaged in such a way that the private sector‚ equipment suppliers‚ equity providers and financiers were all able to understand it, price it and support it. It is hugely important that institutional investors now start to play a leading role.

"We believe risk-adjusted return on these assets is interesting and provides a yield pickup in a world where the search for yield is on‚" said Peo.

Stephen Loubser‚ of Investec Asset Management‚ which manages third party funds such as pension money‚ said the company had made a strong move towards buying infrastructure investments‚ which have been "derisked" by the banks.

"The next frontiers for risk-adjusted returns will have to look at infrastructure investment. With the state of the economy what it is‚ it feels like we are stalling. There is an imperative to work together to find a mechanism to unlock capital from pension funds‚" he said.