National and EU policymakers should address regulatory constraints and risks, such as subsidy changes, that are deterring or preventing pension funds from investing in alternative assets such as infrastructure and venture capital, according to PensionsEurope. 

The European pension fund association bemoaned the lack of infrastructure investment opportunities and said political and regulatory risks could be major barriers to pension funds’ investing in infrastructure over the long term.

It called on policymakers at the national and EU level to “ensure a stable regulatory and fiscal framework” for infrastructure investment, although it added that pension funds themselves could take matters into their hands.

It cited as an example the creation of the Pensions Infrastructure Platform (PiP) in the UK, which pools investment from a number of pension funds. 

The PiP received its UK regulatory authorisation in mid-January, having by then mobilised commitments to invest £1bn (€1.3bn), half of its £2bn target size.

PensionsEurope noted that infrastructure investments were often made in the context of public assets, in some cases incorporating state subsidies.

Such investments require a “stable” public and legal environment over the long term.

“Variability in those areas may significantly reduce investor confidence and willingness to invest,” it said.

“Reducing subsidies during the life-time of a project could significantly curtail the advantages of these types of investments.”

The illiquid and long-term nature of infrastructure investments underscores the importance of stability, it said.

PensionsEurope cited “the many shifts” of tariffs for solar energy projects in the EU as an example of political and regulatory risks that could reduce the appeal of infrastructure investments.

It cited the UK government’s current consideration of reducing feed-in tariffs for small installations, changes in Spain in 2012-13 to the policy on a guaranteed price for renewable electricity, and plans in Norway to “drastically” reduce transmission fees for gas pipelines.

PensionsEurope also called for a better definition of infrastructure investments “to help to support industry-wide best practices or standards for contractual documentation for long-term project financing”.

The association also addressed other non-traditional asset classes in its response to the European Commission’s call for evidence on the EU financial services regulatory framework.

It said “unnecessary regulatory constraints on financing” were also affecting pension fund investment in venture capital and European Long-Term Investment Funds (ELTIFs).

European venture capital funds (EuVECA) have existed since 2013, but there are too few, and the ones that do exist fail to meet pension funds’ basic diversification requirements, said Pensions Europe.

The local implementation and promotion of EuVECA should be corrected to allow pension funds to use the vehicles, the association said.

The EU ELTIF regulation, meanwhile, has not been fully transposed into local legislation and/or regulation for pension funds, it said, which creates problems.

It gave as an example that, in German local pension fund regulation, an ELTIF would be considered an equity vehicle, even if it carried only debt investments.

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