The new German government is preparing to make large sums available for infrastructure investment. At the same time, private capital needs to be mobilised to cover the enormous financing requirements. According to the Bundesverband Alternative Investments, bundling projects on one platform would be a supporting factor, in addition to some regulatory adjustments.

„The bundling of infrastructure projects is important because they are often small-scale,“ explains Frank Dornseifer, Managing Director of the BAI. Bundling supports both scaling and standardisation – and makes it easier for investors to diversify risk – putting their capital into a range of very different projects, and choosing different financing channels: Equity, debt, securitisation, mezzanine and so on. At the same time, this would enable product offerings in which the public side covers higher risks via guarantees, sureties or investments, thus making entry more attractive for private investors.

Dornseifer is convinced that a holistic strategic approach in the form of an „Infrastructure Company Germany“ is required to bring together public and private capital in a wide variety of infrastructure projects at municipal, regional or federal level. This would bundle and scale the assets and projects, and standardise and structure the processes. Only then can private investors with sometimes very different financing approaches be integrated. Such a platform is dependent on governance that ensures that the interests of both the public sector and private investors are safeguarded.

When it comes to setting up such a platform, „we have not yet reached our goal“, says Dornseifer. The growth fund, with a supporting role from the KfW Bankengruppe, European Investment Bank (EIB) or its European Investment Fund (EIF) unit could be a possible model. After all, infrastructure investments have a European and not just a national dimension.

As far as the regulatory treatment of private infrastructure financing is concerned, Dornseifer notes some positive developments in recent years. For a long time, infrastructure investments were not even the focus of legislation or regulation. However, what might appear to be an advantage at first glance has been a major problem in practice. For example, the enumerative catalogue of permissible investment objects in the Investment Tax Act did not include infrastructure as an asset class. This meant that such investments could not be acquired – directly – by special funds until the law was amended in 2018.

And under the European Solvency Directive, there were no specific regulations for infrastructure investments based on the risk-return profile until 2016. As a result, these investments – not only in comparison with supposedly risk-free government bonds – were treated prohibitively in terms of capital adequacy, for instance, like exchange-traded equities. Fundamental progress was then made with the introduction of the „Qualified Infrastructure“ module. Further adjustments were gradually made to various laws, which led to further improvements.

In Germany, investments in infrastructure for pension funds, pension schemes and other institutional investors were made considerably easier in February of this year. This is because the amended Investment Ordinance now provides for a dedicated infrastructure quota, and risk capital investments have been made more flexible overall. For reasons of legal certainty alone, this is a major step forward for investors.

With the amendment to the regulation for European Long-Term Investment Funds, Eltif 2.0, the European Union has, according to Dornseifer, created precisely the vehicle that is suitable for a large number of asset classes that tend to be illiquid, such as infrastructure. Nationally, there is – once again – a so-called infrastructure special fund in the German Investment Code, which is also open to private investors. Both fund initiators and investors can therefore choose between different products. „And that's a good thing,“ says the association's managing director. And of course an Eltif can easily be sold throughout Europe. „And that's exactly the kind of vehicle we need.“

The roadmap for the EU's Savings and Investment Union (SIU) provides for relief for institutional investors with regard to Solvency II. This is initially intended to target the financing of SMEs and venture capital. However, Dornseifer explains that an extension of the simplifications to infrastructure projects is by no means ruled out. The SIU roadmap states that access to alternative asset classes should be taken into account in the revisions to the Capital Requirements Regulation (CRR) for banks and the Solvency II Directive for insurance companies. „We are now waiting for the EU Commission's concrete proposals", he says.