German alternative investment associations will push the government to introduce a separate investment category for pension funds to allocate assets to infrastructure projects, looking at rules in place in North Rhine-Westphalia and Switzerland.
Alternative investments association BAI and IDI – Initiative deutsche Infrastruktur – whose members are also pension funds for professionals (Versorgungswerke) and Pensionskassen, are backing the campaign to boost investments in infrastructure and spliting it from other assets classes in investment regulations (Anlageverordnung).
“Our proposal is to set up a 7.5% quota for infrastructure investments,” BAI’s managing director Frank Dornseifer told IPE, noting that the question is if equity and debt are included in the infrastructure quota as 5% is a low threshhold if both equity and debt are included.
The 5% threshold was mentioned in relation to when such quota was introduced by the state of North-Rhine Westphalia in 2021, allowing pension funds in the state to apply for a separate share of infrastructure investments.
BAI has received positive feedback from pension funds for professionals on the impact of the reform of the state’s investment rules, a reason why it is advocating to extend it to a national level, Dornseifer said.
Moreover, current rules represent at times a “massive restriction” to alternative investments, Dornseifer added, giving as example the 7.5% limit to invest in Alternative Investment Funds (AIFs), only in the European Union.
Alternative investments, including infrastructure, fall under the risk capital investment quota of 35%, according to rules currently in place. The associations are supporting setting up a separate infrastructure category beyond the 35% threshold.
BAI plans to conduct further talks with the Finance Ministry that will be in charge of proposing a bill to reform the investment regulation without going through the approval of the Parliament (Bundestag).
The Insurance Supervision Act – Versicherungsaufsichtsgesetz VAG – gives the government special power to change the investment ordinance, Dornseifer explained.
The financial supervisory authority BaFin will also be involved in the process, as it is in charge of sending out circulars on investment regulations.
The rule introduced in North-Rhine Westphalia, setting up a 5% quota for infrastructure investment is a “good start”, Otto Hörner, director corporate financial investments at BASF, said last week during the Real Assets Symposium organized by BAI in Frankfurt.
Hörner mentioned Switzerland, where he has been in the past responsible for BASF’s pension plans, as an example of a country making it easier for Pensionskassen to invest in infrastructure.
In 2020, Switzerland changed the occupational pension regulation BVV2 to allow pension funds to increase their allocation to infrastructure to 10% of total assets, creating a separate investment category.
However, in contrast to North-Rhine Westphalia and Switzerland, it is not necessary to link infrastructure investments to sustainability in new, nationwide rules in Germany, as Pensionskassen are already subject to other ESG standards, Dornseifer said.
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