Infrastructure Fund courts risk-averse pensions
The fact that the country will enter the European Union with a conspicuously lacking infrastructure, among other reasons, has influenced PEFCo's managers to launch the fund. As such, it will dovetail its investment strategy with various local development projects intended to get Poland's waste management and transport, for instance, up to scratch (see chart).
PEFCo would seek a portion of the zł.40 billion (€8.6 million) in the country's pension coffers to grow the fund to its intended size. Add to that capital, which will be directed into PEFCo, the billions of euros in EU structural funds for direct investments in local projects, and Wojciech Gębicki, PEFCo president, sees a swelling cash pool ideal for breathing life into profitable investments.
"This is the first time in Poland's recent history when it has had this much capital," he comments.
Nevertheless, these investments have none of the high-flying promises of returns associated with a number of private equity houses.
"These are going to be boring projects," he admits, comparing the investment strategy to those often practiced by venture capitalists and private equity houses in such high-risk-high-return industries as hi-tech.
But there is a catch, which could play well into the hands of risk-averse pension funds.
PEFCo, he explains, would proffer less risky investments, partially owing to co-investments from EU structural funds, with smaller but more stable returns.
Stability has always been a rule with investments from Poland's new three-pillar pension system.
And as most economists forecast a significant boost to GDP growth next year, Gębicki sees a green light for his plans.
"Infrastructure has a very strong correlation with GDP growth," he says.
Further, Gębicki is quick to point out that infrastructure investments offer investors a "natural monopoly." The business from the build-out of transport infrastructure within one city has no direct competitors - and that business model could be replicated elsewhere to similar effect.
If the plan is a relative success, it would place PEFCo among a handful of new private equity investment funds targeting pensioners' savings, such as Copernicus Finance's planned fund of funds and Baring Private Equity Partners' expected new investment vehicle.
Now that the management company has outlined its market, it admits that there is still some work to do. The exact financing structure has not been finalized. The fund's operator will be a joint-stock company, which will raise the fund's capital via a bond offering.
Gębicki assures that PEFCo investors would find equity-like returns - though not the sky-high profits promised by some venture capitalists - with bondholder security. Investors would get their full investment back from the bonds, but also a share of the profits from the fund's own investments. What's more, as with most bondholders, investors would have first claim to the investment company's assets, should it have to default.
With those characteristics in mind, potential investors are at least showing initial interest.
Sławomir Solarz, a director at the Insurance and Pension Funds Supervisory Office (KNUiFE), says there has been discussion at the Ministry of Infrastructure about tapping pension funds as a source for investment in infrastructure. And, in that light, a fund like PEFCo could be an ideal piece of the puzzle. Though, Solarz says, no progress at the ministry has been made.
"On the one hand, it's welcome from the ministry's standpoint, but on the other hand, do we need it?" he says.
Solarz says he will wait to see more details from the ministry as well as PEFCo before making more specific comments.
Besides pension funds, Gębicki says he is targeting capital from international institutions, such as the European Investment Bank, European Bank for Reconstruction and Development and the World Bank.
Jacek Wojciechowicz, Warsaw-based spokesman at the World Bank, says that an infrastructure fund could be a potential target for the bank's finance arm, the International Finance Corporation.
PEFCo would invest between €5-100 million (zł. 23-466 million) per project.
PEFCo would seek a portion of the zł.40 billion (€8.6 million) in the country's pension coffers to grow the fund to its intended size. Add to that capital, which will be directed into PEFCo, the billions of euros in EU structural funds for direct investments in local projects, and Wojciech Gębicki, PEFCo president, sees a swelling cash pool ideal for breathing life into profitable investments.
"This is the first time in Poland's recent history when it has had this much capital," he comments.
Nevertheless, these investments have none of the high-flying promises of returns associated with a number of private equity houses.
"These are going to be boring projects," he admits, comparing the investment strategy to those often practiced by venture capitalists and private equity houses in such high-risk-high-return industries as hi-tech.
But there is a catch, which could play well into the hands of risk-averse pension funds.
PEFCo, he explains, would proffer less risky investments, partially owing to co-investments from EU structural funds, with smaller but more stable returns.
Stability has always been a rule with investments from Poland's new three-pillar pension system.
And as most economists forecast a significant boost to GDP growth next year, Gębicki sees a green light for his plans.
"Infrastructure has a very strong correlation with GDP growth," he says.
Further, Gębicki is quick to point out that infrastructure investments offer investors a "natural monopoly." The business from the build-out of transport infrastructure within one city has no direct competitors - and that business model could be replicated elsewhere to similar effect.
If the plan is a relative success, it would place PEFCo among a handful of new private equity investment funds targeting pensioners' savings, such as Copernicus Finance's planned fund of funds and Baring Private Equity Partners' expected new investment vehicle.
Now that the management company has outlined its market, it admits that there is still some work to do. The exact financing structure has not been finalized. The fund's operator will be a joint-stock company, which will raise the fund's capital via a bond offering.
Gębicki assures that PEFCo investors would find equity-like returns - though not the sky-high profits promised by some venture capitalists - with bondholder security. Investors would get their full investment back from the bonds, but also a share of the profits from the fund's own investments. What's more, as with most bondholders, investors would have first claim to the investment company's assets, should it have to default.
With those characteristics in mind, potential investors are at least showing initial interest.
Sławomir Solarz, a director at the Insurance and Pension Funds Supervisory Office (KNUiFE), says there has been discussion at the Ministry of Infrastructure about tapping pension funds as a source for investment in infrastructure. And, in that light, a fund like PEFCo could be an ideal piece of the puzzle. Though, Solarz says, no progress at the ministry has been made.
"On the one hand, it's welcome from the ministry's standpoint, but on the other hand, do we need it?" he says.
Solarz says he will wait to see more details from the ministry as well as PEFCo before making more specific comments.
Besides pension funds, Gębicki says he is targeting capital from international institutions, such as the European Investment Bank, European Bank for Reconstruction and Development and the World Bank.
Jacek Wojciechowicz, Warsaw-based spokesman at the World Bank, says that an infrastructure fund could be a potential target for the bank's finance arm, the International Finance Corporation.
PEFCo would invest between €5-100 million (zł. 23-466 million) per project.
