G20 financial ministers and central bank governors welcomed the findings of the G20/OECD roundtable on institutional investors and long-term investment last month, which included clear plans to incentivise institutional investors to undertake more long-term investments.
The roundtable, “From solutions to actions: implementing measures to encourage institutional long-term investment financing”, held in Singapore recognised that long-term investment in infrastructure will contribute to global efforts to return to self-sustaining growth, and that institutional investors can help fill the finance gap. The key issue, the roundtable discussed, is the intermediation of available private capital into infrastructure.
Key messages raised by participants during the roundtable included that to incentivise institutional investors to undertake more long-term investments, performance measurements and compensation should be based on longer-term metrics and should not be penalised for short-term market fluctuations.
It was suggested that inflation-linked debt is an attractive asset class, and that introducing instruments that have a clear and explicit link with inflation would contribute to the better matching of assets and liabilities for pension funds.
While it was recognised that as traditional financing sources such as governments and banks become increasingly constrained and institutional investors can fill the financing gap, participation of non-bank private capital in infrastructure financing is hindered by the different interests of the various stakeholders in the project loan market.
To bridge the different needs and risk appetites, it would be efficient if capital could be “right-sighted”, so that commercial banks can finance projects at the construction stage, while institutional investors take over post-construction projects with stable cash flow.
It was also discussed that accounting standards can play a role in enhancing transparency, an essential part of attracting finance, and helping investors make informed decisions about long-term investment.
Some investors view current regulatory and accounting treatments as favouring mark-to-market accounting and low risk liquid assets instead of long-term investments.
Participants included delegates from G20/OECD Taskforce, IIWG delegates, B20 sherpa and representatives, IOs and senior representatives (CEOs/CIO) from institutional investors including the largest SWFs, pension funds and insurers, but also asset managers and banks. Leaders of the G20 asked their finance ministers at their meeting in St Petersburg in September 2013 to identify approaches to the implementation of the G20/OECD high-level principles on long-term investment financing by the next leaders meeting, which will be in November 2014 in Brisbane, Australia.
The Fiduciary Investors Symposium, to be held on campus at Harvard University on October 26-28, will address the barriers investors need to overcome to invest more in long-term investments. Speakers at this session include:
Jane Ambachtsheer, global head of responsible investment, Mercer
Sharan Burrow, general secretary, International Trade Union Confederation (ITUC)
Raffaele Della Croce, lead manager, long-term investment project, OECD
Conor Kehoe, senior partner, McKinsey
Jameela Pedicini, vice president, sustainable investing at Harvard Management Company
Fiona Reynolds, managing director, PRI
Ethiopis Tafara, vice president and general counsel of International Finance Corporation, a member of the World Bank Group
Chair: David Wood, director of the Initiative for Responsible Investment at Harvard University