European investment plan requires public private collaboration

The two largest institutional investors in the Netherlands, PGGM and APG, have responded to the European Commission’s investment plan, urging the commission to call on institutional investors to collaborate on the investment proposal. However they also warn that institutional investors are not just a “subsidising entity” and the Juncker Plan is best executed as a partnership.

In a paper entitled “We need to talk”, director of group strategy and policy at APG, Tjerk Kroes, and chief investment management of PGGM, Eloy Lindeijer, are dubious about the relationship between government and investors in the past, saying that whenever governments see the need for large investments they tend to look at large institutional investors to supply the funds.

While this is only natural, they say: “…institutional investors have not been created to fill the gaps in government budgets they are here for a reason of their own.”

“In the case of APG and PGGM, our mandate is to invest pension savings in the best interest of our clients’ pension plans. Consequently APG and PGGM can participate in the Juncker Plan, ie invest in Europe, if and only if the actual risk-return profiles of the investment projects are at least as attractive as the best alternatives.”

The funds’ both currently invest around 50 per cent of their assets in Europe.

“In other words,” the authors say, “we do not feel entitled to take on the role of a subsidising entity, liberally supplying funds that have been entrusted to us by our clients’ participants.”

However they say that there may be scope for cooperation between the Commission and institutional investors, in particular on getting the “framework right”.

“Institutional investors have extensive market knowledge, concerning for instance securitisation and infrastructure investments. They also have extensive market experience, for instance where investment project selection is concerned, or investment structuring or project monitoring. We feel that not only the general regulatory framework, but also the actual set up of the Juncker Plan could benefit from market insights. In short, the actual execution of the Juncker Plan should ideally be organised as a partnership between the public and private sector.”

Commenting on the endorsement of the Juncker Plan and the European Commission’s green paper on the capital markets union, the investors say the measure of success for the capital markets union will be the extent to which it can raise actual investment in the real economy.

Eduard van Geldren, chief investment officer of APG, echoed these comments, calling for the European Commission to seek deeper private sector investment in its plans.

Broadly, he says, APG welcomes the ambition of broad and far-reaching policy objectives.

The European Commission’s investment plan emphasises environmentally-sustainable projects, expansion of renewable energy and resource efficiency.

This is aligned with APG which is actively seeking to invest in solutions for sustainable development issues and the fund has made a commitment to double renewable investments from 2014 to 2017.