openPR Logo
Press release

PGGM Puts Direct Investments and JVs at the Heart of its Infrastructure Investing Strategy

06-15-2011 11:45 AM CET | Business, Economy, Finances, Banking & Insurance

Press release from: InfraNews

InfraNews

InfraNews

By Michael Dunning

GP managed infrastructure funds have been casting an anxious look over their shoulders as a growing number of institutional investors have chosen to invest directly in infrastructure assets. Direct investing, or co-investing alongside a GP managed fund, is changing the way infrastructure investors approach the asset class. It’s changing the type of investments GP managed funds make; it’s changing the focus those funds place on operating and managing infrastructure assets; and it’s changing the fees they charge to manage institutional capital.

For institutional investors, it’s changing the way they resource their businesses as they seek to follow the Canadian and Australian direct investing pioneers such as the Ontario Teachers’ Pension Plan (OTPP) and Borealis that have been using direct investments to gain exposure to the infrastructure asset class for many years.

Leading the charge among European institutional investors is the Dutch pension fund administrator PGGM, which manages EUR105bn of retirement savings for employees in the Netherlands’ healthcare and social services sectors.

Last month PGGM announced an innovative new joint venture with Royal BAM Group, also of the Netherlands, to invest in infrastructure assets. The 50/50-owned enterprise will focus on transport and social infrastructure PPPs.

The initial target value for the joint venture is EUR390m, which involves the transfer of EUR150m worth of existing PPPs from BAM’s portfolio. The remaining EUR240m will be allocated to new projects, which are still to be acquired. PGGM is providing the lion’s share of capital for existing projects, whereas future investments will be undertaken on a 50/50 basis.

“It makes sense to combine a long-term investor and a very big European construction company,” says PGGM’s head of infrastructure, Henk Huizing, in an interview with InfraNews. “For BAM, it is important that they have the equity to make new bids. It is important for us to have a long-term stream of PPP assets that are relatively low-risk operational and yielding assets.”

This is not the first time PGGM has moved to create a joint venture to combine its financial muscle with a developers’ operational know-how. Late last year it teamed up with Lend Lease to create a GBP220m (EUR250m) fund. Although not as big as the BAM deal, the partnership also focuses on PPPs and includes investments in current operational and future projects. One of the attractions of such deals for pension funds and other institutional investors is the absence of volume risk and low counter-party risk.

GP Managed Funds Have Fallen Short
However, there are a number of other factors that have been driving PGGM towards schemes like the BAM and Lend Lease deals. High on the list were the fees that GP managed funds charged – management charges are now around 1% although they used to be more costly at around 1.5%-2% - and the failure of certain GP managed funds to deliver the returns they had promised.

“Funds are expensive”, says Huizing bluntly. “Also, as a pension fund you don’t have control over your assets or the construction of your portfolio. In theory, and in practice, you can end up with a portfolio you didn’t intend.”

The relatively mixed performance of GP managed infrastructure funds is another major factor. Those funds that have focused on PPP-type projects have generally performed much better over the past number of years than those that have targeted assets that are exposed to volume and price risk. That mixed performance, notably among the latter type of funds, has more-often-than-not been related to the quality of asset selection. If a single asset in a fund underperforms it can mean that the fund’s proposed target returns are never reached and investors have to then live with the consequences.

There is a route institutional investors can take in order to avoid those problems.

“If you invest directly you can choose the assets you want and construct the portfolio you want. Another very important element is that those infrastructure funds have a lifetime that is typically eight, 10 or 12 years. We invest in infrastructure assets that have a lifetime of 30 or 40 years,” says Huizing. “We see infrastructure investment providing a long-term, continuous and stable cash-flow, so you should have an annual yield year-in year-out. We started direct investing two years ago and have made some significant and strong-performing investments.”

To read the full article, click here: http://www.infra-news.com/analysis/investor-watch/872278/pggm-puts-direct-investments-and-jvs-at-the-heart-of-its-infrastructure-investing-strategy.thtml

For more information about InfraNews (www.infra-news.com) and find out if you are eligible for a free trial call Ken McAllister on + 44 (0) 207 786 9282 or e-mail at subscriptions@infraresearch.com. Please remember to quote your reference: INPR17OPR.

InfraNews is the most relevant, timely & accurate provider of news, analysis & research about the latest greenfield & brownfield infrastructure projects & deals across the European and global infrastructure communities.

Inframation Ltd
1st Floor
4 City Road
London
EC1Y 2AA
Contact: + 44 (0) 207 786 9282

This release was published on openPR.

Permanent link to this press release:

Copy
Please set a link in the press area of your homepage to this press release on openPR. openPR disclaims liability for any content contained in this release.

You can edit or delete your press release PGGM Puts Direct Investments and JVs at the Heart of its Infrastructure Investing Strategy here

News-ID: 179415 • Views: 1896

More Releases from InfraNews

Why the Eurozone Sovereign Crisis is a Bad Thing for Infrastructure Investors
By Peter Allison To say that fear stalked European financial markets during August is something of an understatement. While temperatures rose in Greece, Italy and Spain, markets headed in the opposite direction. The underlying theme was volatility. The swing in yields on ten-year Spanish and Italian government treasuries was an eye-watering 1% during one week in August. Equities dropped in value and then recovered slightly. Then they fell again. The price
Will KKR, Munich Re T-Solar Investment Kickstart Renewables M&A In Spain?
By Peter Kneller The Spanish solar market has been experiencing some strange goings-on of late, most notably KKR and Munich Re’s investment in Grupo T-Solar’s 168MW Spanish and Italian solar portfolio. The deal – one of the largest investments in an operational solar PV portfolio in the renewable energy sector’s short history - took place against the background of increased regulatory pressure in the country’s solar market. The bulk of installed solar PV
InfraNews Case Study: Multicurrency Programme Sets a Precedent for Infra Investo …
The NOK3.8bn (EUR477.8m) of sterling, dollar and kroner bonds that a venture between UBS International Infrastructure Fund and CDC Infrastructure issued in the second half of June to finance its acquisition of an 8% stake in Gassled has established a template for other recent financial investors in Norway’s offshore gas pipeline company to follow. Further bond issues to provide acquisition finance for shares in the company that ships a quarter
InfraNews Case Study: BAA Broadens its Investor Base with Inaugural US Dollar Bo …
UK airports operator BAA refinanced most of its outstanding medium-term bank debt in June with an inaugural USD1bn bond issue that significantly furthered the company’ strategic plan of broadening its investor base. The BAA funding securitisation vehicle, set up by the Ferrovial-led Airport Development and Investment (ADI) consortium in August 2008 to refinance its GBP10.3bn acquisition of the company two years earlier, has now issued significant volumes of capital markets

All 5 Releases


More Releases for PGGM

IPCC report stresses need to decarbonize real estate sector by 2050 - to address …
Are real estate investments at risk of increasingly stringent energy efficiency regulation and climate change? - Funded through the European Commission’s Horizon 2020 research and innovation program, the Carbon Risk Real Estate Monitor (CRREM) initiative will establish science-based carbon reduction pathways for European commercial real estate portfolios and develop a carbon risk assessment tool for investors to understand downside risks and identify carbon efficient retrofit opportunities. CRREM now launched
Kaupthing Bank Acquires NIBC
August 2007--Kaupthing Bank hf. (\"Kaupthing\") today announces that it intends to purchase the entire share capital of NIBC Holding NV (\"NIBC\") for EUR 2,985 million. NIBC represents an excellent strategic fit for Kaupthing in terms of geographic diversification, products and business culture. Kaupthing Bank hf. (\"Kaupthing\") today announces that it intends to purchase the entire share capital of NIBC Holding NV (\"NIBC\") for EUR 2,985 million. NIBC represents an excellent strategic
direct/ Robeco (NL) - Holland Financial Centre offers ten recommendations
With the presentation of the report ´Towards a strong, open and internationally competitive financial centre´ by chairman Arthur Docters van Leeuwen to Finance Minister Wouter Bos the Holland Financial Centre (HFC) was launched. The principal financial-services providers in the Netherlands took part in this initiative. The aim of the HFC is to further develop the Netherlands into an internationally attractive and strong financial centre. The Netherlands have a lot to