Infrastructure bonds as a way of attracting funds from institutional investors to meet the need for investment in infrastructure

Today the world investments in infrastructure sphere constitutes $2.5 trillion a year 1. These investments go to the transportation, power, water, and telecom systems on which businesses and populations depend. Yet this amount continues to fall short of the world’s ever-expanding needs, which results in lower economic growth and deprives citizens of essential services.

From 2016 through 2030, the world needs to invest about 3.8 percent of GDP, or an average of $3.3 trillion a year, in economic infrastructure just to support expected rates of growth. Emerging economies account for some 60 percent of that need. But if the current trajectory of underinvestment continues, the world will fall short by roughly 11 percent, or $350 billion a year 2.

Thus, the needs of the whole world in the development of infrastructure are enormous, since infrastructure investments have a significant impact on economic development, productivity growth and employment. Also, investments in infrastructure projects increase competitiveness and help diversify the economy. World Bank studies show that 3:

• -    a 10% increase in investment in infrastructure development contributes to an increase of about 1% in economic growth in the long term;

• -    improvement of roads in China: in 1990-2005 was spent 600 billion dollars, which led in 2007 to an increase in aggregate real income by 6% more than without the development of infrastructure;

• -    about half of the economic growth in the poorest countries in Africa over the past few years has been caused by improvements in infrastructure.

Long-term investments (capital investments) all over the world make up 2530% of GDP annually in the last decade. In fast-growing countries, they tend to be higher: in China - 51% of GDP, in India - 35%, in Brazil and Mexico -26% of GDP 4. The volume of investment in Russia is about 22% of GDP, which corresponds to the level of countries such as the United States and Britain.

China is the leader in the infrastructure investment market, investing on average more than $ 500 billion annually over the past 20 years. The average volume of investment of the countries of the European Union was 400 billion dollars. The USA - 374 billion dollars 5.

Economic growth in developing countries and the BRICS countries in the past 10 years has outpaced the developed countries. However, the level of infrastructure investment excluding China and India was below average. So, in Brazil, it was only 1% of GDP, in Russia and South Africa - 2% of GDP 6.

Obviously, given the low level of provision of infrastructure facilities and their quality in comparison with developed countries, the infrastructure activity of developing countries should be higher, as the potential for extensive economic growth is almost exhausted.

Thus, it can be seen that the development of infrastructure can play a positive role in stimulating GDP growth and economic development in general. In this regard, it is necessary to think about the possibilities of investing in the infrastructure sphere.

At the beginning of the 21st century, project lending was the main instrument for financing infrastructure, because it was more convenient and less expensive than other tools and was available for a long time. However, the consequences of the global financial crisis caused a significant limitation of project lending, the conditions for banking regulation were tightened, which led to a reduction in investment in infrastructure.

After the crisis of 2008, investments in infrastructure in the form of bank loans became not possible due to the introduction of new principles of banking regulation. Thus, the well-marked restrictions on bank financing that followed the 2008 financial crisis forced sponsors to reconsider the use of the infrastructure bond instrument in financing new and existing (ongoing) projects 7.

In modern conditions of shortage of long-term bank financing, infrastructure bonds issued in the process of securitization mechanism could become an alternative source of attracting a large amount of capital due to its liquidity and the opportunity to give institutional investors (pension, insurance and national sovereign funds) access to infrastructure assets.

Growing budget deficits and a significant amount of accumulated debts of states are an objective factor in reducing the role of public investment financing. In connection with this fact, in the structure of the financial sector itself in recent years there have been significant changes - institutional investors such as pension funds, insurance companies, mutual funds and, more recently, sovereign wealth funds are not only active players, but also they try to increase their share 8. This trend is particularly strong in the long-term capital market, where the share of banks is declining.

Taking all the above into account, it can be noted that institutional investors, such as pension funds, insurance companies, investment funds (including sovereigns) can be considered as "ideal" long-term investors for securitization. The "long" horizon of investment is connected, first of all, with the long-term structure of their liabilities.

According to Infrastructure Investor estimates in 2016, less than 1% of the assets of all pension funds in the world are invested in infrastructure projects 9. However, the interest of pension funds to invest in infrastructure is growing rapidly: 8 of the 30 largest global investors in infrastructure - pension funds. This form of investment has proved effective for pension funds of many countries (USA, Great

Britain, Korea, etc.). including those with natural factors similar to Russia, which determine the need for infrastructure development: the natural conditions and the scale of the country (Canada).

Pension funds are an important financial institution in the economy of developed countries. Investing in infrastructure is a new tool for investing pension funds in developing countries. In recent years, pension funds are actively considering investing in infrastructure in order to diversify their portfolio. It is assumed that investments in infrastructure bring a predictable, inflation-indexed and stable cash flow, which is consistent with their obligations and reduces the volatility of the investment portfolio.