What do German development bank KfW, US retirement services firm TIAA–CREF, Dutch pension manager APG and Canada’s Caisse de dépôt et placement du Québec have in common? Yes, they’re all signatories to the UN-backed Principles for Responsible Investment (PRI).
But they are also part of something that’s less well known: the Long-Term Investors Club. The LTIC is a Paris-based organization whose chief purpose is to mobilise institutional investment in renewable technology and infrastructure.
The LTIC was founded in 2009 by the KfW and three other state development banks: France’s Caisse des Dépôts (CDC), Italy’s Cassa Depositi e Prestiti (CDP) and the European Investment Bank.
The first years of the group, during which the CDC held the presidency, were marked by rapid expansion. The LTIC now counts 19 members, among them the development banks of Russia, Japan and China as well as four pension funds, including the three already mentioned. They represent at least €4trn in assets.
The LTIC’s presidency is currently held by Ulrich Schröder, chief executive of the KfW. Schröder’s Chief of Staff, Christian Krämer, says that after the initial growth period, it’s time for the LTIC to consolidate and communicate to the public what it’s all about. RI interviewed him at the KfW’s headquarters in Frankfurt.
RI: Why was the LTIC started?
Krämer: The four development banks realised that they had much in common. For one thing, whether by lending, issuing bonds or investing directly, they finance projects in the areas of climate protection, environment and infrastructure. They are long-term investors that are not interested in short-term gains. Beyond these shared values, there were practical reasons for founding the LTIC. One was speaking with a common voice on regulatory issues. Recently, the LTIC’s European development banks attended a meeting of EU finance ministers where we met Michel Barnier, the EU Commissioner for internal market and services. We politely informed him that with respect to the EU’s banking regulation, Brussels should not make the mistake of inadvertently making this harder for long-term financiers like ourselves. The willingness of Commissioner Barnier to meet the LTIC shows that the club is well recognized at the EU level as a competent partner for long-term financing issues.That’s fine for the development banks, but what about the pension funds in your group – what does the LTIC do for them?
The LTIC also serves as a platform for discussions about investing in our core themes – climate protection, environment and infrastructure worldwide. If, for example, TIAA–CREF would consider investing in these themes in Germany, we at the KfW would be an excellent contact, because we know the political and regulatory environment. It wouldn’t be any different, if TIAA–CREF were looking at France, where the CDC could help, or Russia, where the Vnesheconombank is the expert.
Has any specific investment materialised?
Absolutely. One example is the €710m “Marguerite Fund,” which invests in renewable projects across Europe to help the EU reach its climate protection goal for 2020 (a 20% cut in carbon emissions against 1990 levels). Another is InfraMed, a €385m fund dedicated to investing in sustainable urban transport and energy infrastructure in Mediterranean countries. The Marguerite fund is backed by six LTIC members, including us, France’s CDC, Italy’s CDP, the Spanish development bank ICO, Polish bank PKO and the EIB. InfraMed was set up by the CDC, CDP and the EIB.
European pension funds are reluctant to invest in renewables, given liquidity issues and project risk. What has been the experience of LTIC’s pension funds?
Yes, renewable investments are illiquid, but when one decides to invest, it’s clear that it’s for the long term. But APG and our two Canadian pension funds have a diversified portfolio and part of that is reserved for an asset class like renewables or infrastructure which provides them with steady returns over the long term. They find that in projects like the Marguerite fund. The worst you could probably say about the asset class is that it’s not very sexy.
Have any other investments emerged as a result of the LTIC platform?
Investments in climate protection and the environment have been the focus so far. But there is a lot of interest among our members in building up transportation infrastructure across Europe – i.e. trains, railways, motorways and airports. TIAA–CREF, for example, was part of a consortium that made a bid for the Edinburgh airport early last year (the bid lost out to a rival which offered €966m).
What happens if the LTIC is not used to spur investment in renewables and infrastructure but for other business?
If we at the KfW had the feeling that things were happening that had nothing to do with the LTIC’s mission, we would have to have a serious talk about that, and if that were not resolved, we could leave. With respect to the mission, we have to be a bit strict about who can join. Recently, we had to decline an application for membership from a Central Asian republic because the candidate’s corporate governance was not something our members were comfortable with.Would you say the door is basically shut to new members?
We haven’t closed the door, but there is a consensus among our 19 members that following a phase of huge growth in our first years, it’s time to consolidate. Here in Europe the LTIC has established itself as a brand, as the example with Commissioner Barnier shows. We now want to see if this can be done on the global level. That will be a challenge given such a diverse community of members. That said, all of them are committed to long-term finance and active in the areas of climate protection or infrastructure. Besides, the Green Investment Bank of the UK, which we at the KfW helped set up, would be one of several ideal candidates for membership in the future.