Dutch Pensions Paving the Way for Infrastructure Development

Abstract

A confluence of related macroeconomic, political, and regulatory trends has led to a widening infrastructure-financing gap and increased pressure on governments globally to identify new sources of capital for infrastructure development. Since the global financial crisis, public-sector balance sheets, which are the traditional source of funding for infrastructure development, have been extremely constrained. Even for privately financed infrastructure projects, the traditional providers of capital have withdrawn in response to new banking regulations. This gap creates an opportunity for institutional investors, such as pension funds, to step in and fill the void. And yet, although institutional investor allocations for infrastructure continue to increase, much of this capital is not directed toward the types of projects most in need of new investment. In this article, the authors examine the conditions that can enable pension funds to make direct investments in greenfield and growth-stage infrastructure. To clarify this issue, they examine the recent N33 project in the Netherlands, which has seen Dutch pensions PGGM and APG provide, respectively, the equity and a majority of the takeout debt financing for the growth-stage project. The lessons learned from this case are relevant to project sponsors and policymakers wondering about the conditions under which local pension funds can invest in local infrastructure.

TOPICS: Project finance, other real assets, developed, legal/regulatory/public policy