Policymakers must remove barriers to private investment in European infrastructure, says Invest Europe

Policymakers must remove the barriers to investment faced by infrastructure funds in order to help achieve the €2 trillion of vital European infrastructure investment needed by 2020, according to a new report launched today by Invest Europe.

The trade association’s Investing in Infrastructure briefing is published today to coincide with the launch of Invest Week, a series of events spearheaded by Invest Europe which focuses on the European investment and growth agenda.

With an ageing population placing demands on healthcare, a global and rapidly digitising economy requiring more complex supply chains, and environmental and social sustainability necessitating new energy and transport systems, long term investment in European infrastructure is more important than ever, outlines the publication. The European Commission has identified €2 trillion of investment in infrastructure by 2020 to support Europe’s economy, but many sources of infrastructure investment have been in decline since the financial crisis.

“European infrastructure needs an annual investment of 3.6% of GDPto keep the economy growing, according to the European Investment Bank, but public expenditure is under strain and many banks have reined in their lending,” said Michael Collins, Chief Executive of Invest Europe. “The long-term capital and expertise provided by private infrastructure funds to invest in infrastructure is too often hampered by short-sighted policies that create instability and deter investors.”

The briefing outlines the key requirements to facilitate and encourage investment via infrastructure funds, which include:

• Stability, predictability and transparency around fees and tariffs
• Lower risk-weightings for investments into infrastructure corporates under the Solvency II framework, to encourage insurance companies to put more of their capital to work
• Investment-friendly sector rules that encourage the flow of private sector capital into Europe’s infrastructure companies

European citizens and businesses rely on infrastructure assets daily for transport, clean water supplies, power, communication, healthcare and education. Infrastructure funds are key investors, channelling private capital from institutional investors, such as pension funds, insurance companies and sovereign wealth funds. These funds are typically held for 10 or 15 years – sometimes longer – meaning that a stable and predictable regulatory environment is essential. Moreover, corporations that own and manage infrastructure are currently penalised with the risk weightings required for investment by insurance companies under the industry’s Solvency II regulation.

“Investment by experienced infrastructure fund managers, backed by institutional investors with long-term horizons, demonstrably improves the efficiency of existing infrastructure assets,” said Collins. “This reduces the need for governments to embark on costly and lengthy new projects and ensures the region has world-class infrastructure.”

Infrastructure funds targeting Europe have over €167 billion of capital under management, according to data from the Inframation Group. Meanwhile, the McKinsey Global Institute estimate that almost €400 billion of annual investment could be saved globally by making better use of existing infrastructure.

Invest Europe – formerly called the European Private Equity and Venture Capital Association (EVCA) – is the not-for-profit trade association representing European private equity, venture capital and infrastructure funds and their global investors. Investing in Infrastructure is available to download for free via its website, investeurope.eu.