Asset Management | New Infrastructure Quota for German Pension Funds – New Opportunities for Asset Managers

Background on the Opportunity
The new infrastructure quota comes at a critical time as the EU aims to be climate-neutral by 2050. Germany, even more ambitious, has committed to achieving climate neutrality by 2045, requiring an estimated EUR5 trillion in investments according to research by the state-owned development bank, Kreditanstalt für Wiederaufbau – KfW. With only minority of this amount expected to be covered by the public sector, there is a significant opportunity for private investments. Integrating infrastructure as a yield component into institutional investors’ portfolios presents a dual opportunity: addressing the need for adequate pension provisions while financing the energy transition.
Understanding the Quota System
The German Investment Ordinance provides a strict quota system for the investment of an LP to ensure diversification and manage risks. For example, investments in private equity participations are limited to 15% of the investors’ collateral assets, and for real estate investments, the limit is 25%. This quota system will now be amended by a separate infrastructure quota of 5%. Previously, existing investments in infrastructure needed to be allocated into one of the other quotas. In many LP portfolios, however, these quotas are historically maxed out, particularly the private equity and real estate quotas. Therefore, the introduction of a separate infrastructure quota comes as a relief, as it increases the portion of LP assets that can be invested in infrastructure.
Requirements of the New Infrastructure Quota
To qualify for the new infrastructure quota, the investment must:
- Directly or indirectly finance (via equity or debt) infrastructure assets and/or infrastructure undertakings; and
- Satisfy the requirements of a certain type of investment listed in section 2 para 1 of the Investment Ordinance, e.g., unlisted participation, closed-ended equity funds, real estate companies, real estate funds, or other AIFs.
Neither the term “infrastructure assets” nor “infrastructure undertakings” has been explicitly defined in the proposed law. However, it is specified that such an investment must serve the construction, expansion, renovation, maintenance, provision, holding, operation, or management of infrastructure. Thus, private equity or real estate investments might be considered as investments in infrastructure under the proposed law. Examples in practice may include, depending on their structure, energy infrastructure or data centers.
BAHR Comments
The introduction of the new infrastructure quota has been widely welcomed in the German market. According to a recent survey by the representation of interest for Alternative Investments in Germany (Bundesverband Alternative Investments – BAI), a majority of German investors plan to increase their allocation in infrastructure equity and debt. The BAI Investor Survey data reveals that 74.8% of German LPs have already committed to infrastructure equity, making it the second most favored alternative asset class after real estate equity. Additionally, 42.1% of the surveyed investors are engaged in infrastructure debt. For both asset classes, a majority of investors plans to further increase their allocation. Megatrends such as ESG, digitalization, and energy transition will add further momentum to the development of infrastructure as an asset class.
On an EU level, infrastructure investments are also on the rise. The newly reelected EU Commission President, Ursula von der Leyen, announced to continue to build her vision of the Green Deal. Accordingly, infrastructure investments are explicitly highlighted in her political guidelines for the next term (2024 – 2029). To strengthen infrastructure investments, the European Investment Fund (EIF) provides its own investment program, for which it currently conducts a call for expressions of interest by investment funds (in any form) to apply for investments by the EIF of up to EUR 150 million.
Asset managers who currently offer or plan to offer infrastructure investments to German LPs should review whether their investment strategy and restrictions would qualify under the new infrastructure quota. German LPs may require a detailed eligibility memo, similar to those used in other quota contexts. By doing so, asset manager will be able to benefit from this special momentum when offering investment opportunities in infrastructure. For more information on the implications of the new infrastructure quota for your business and to keep up with further developments, feel free to contact us.