Great expectations for pension funds: a tale of two cities

Abstract

There has long been an interest in encouraging institutional investors such as pension funds to play a greater active role in the provision of public infrastructure. To date, however, there has only been limited success in mobilising growing pools of pension funds to meet increasing infrastructure needs. This chapter investigates the relationship between pension funds and Public-Private Partnerships (PPPs). It articulates the various regulatory and policy frameworks influencing both and examines both barriers preventing closer ties and incentives encouraging increased investments from this source. Empirical case studies are then presented from different democracies to illustrate the contemporary roles played by pension fund investments in PPPs. The argument made in this chapter is that, whilst significant pension fund investment in PPPs is already taking place, the evidence is unclear whether there are strong common barriers to greater pension fund investment in PPPs and whether, in any case, encouraging increased infrastructure investments by pension funds is a desirable public policy outcome for citizens. If the case can be made that reforms to promote greater pension fund investment in PPPs are desirable, these reforms may be oriented towards pension funds (to loosen regulatory mechanisms and enable wider investment possibilities, or else increase the capacity of pension institutions to make such investment decisions), or towards PPP policy reforms (in order to attract pension fund investments in public infrastructure.) Potential viable options encompass a significant breadth of reform and several layers of complexity, however. These complex interacting frameworks constrain pension fund investment in PPPs and are jurisdictionally contingent, thus making the identification of generalised reform oriented solutions difficult. In this context, several avenues for future research are recommended.