Iceland’s pension funds are in the process of creating a joint real estate investment company.
Details of how the company will operate are not yet known, but insiders said it is being created so that the schemes could get more involved with government infrastructure projects and give them a new place to invest their money.
Since the country’s financial collapse just over a year ago Icelandic funds have been prohibited from making any new foreign investments, which has essentially limited their investment horizon to domestic cash deposits and government bonds. The Icelandic Pension Funds Act also limited pension fund from owning direct real estate except for their own use, however a loophole allows schemes to own equity and bonds in a real estate company.
With several domestic infrastructure projects badly in need of funding, the Icelandic government has been asking the pension funds for help with numerous ventures. The institutions are some of the few people in Iceland to have any cash at hand, and in the past few weeks they have shown signs that they are interested in taking part.
This month, 20 Icelandic pension schemes, representing more than 80 per cent of the country’s pension fund assets, agreed in principle to take part in the funding of the construction of a new hospital.
Construction is expected to begin in 2011 and the total cost is estimated at IKr33bn (€178m).
Schemes are currently discussing another infrastructure project, which is the construction of a new air and bus terminal at the domestic airport in Reykjavik.
Meanwhile at a recent meeting schemes could not reach an agreement on contribution levels and size of a planned joint private equity fund known as the IIF. However, on 10 November Icelandic schemes received word that the fund would be called Framtakssjodur Islands Limited Partnership and will be launched at an upcoming pension fund association meeting on 24 November. Funds must decide prior to the day how much they wish to commit.
Iceland’s schemes have been haggling for months over how the private equity venture would be managed and funded. Initially it was thought that the fund would reach a size of IKr75bn, but this would have required schemes to commit up to 25 per cent of their cash inflows for three years.
The schemes protested that this was far too much and argued that the IIF would have to be smaller and that even contributing as much as 15 per cent of cash inflows for 3 years would be difficult to manage.
The IIF’s aim was to act as a private equity type of vehicle that could help provide badly needed capital and relief to the country’s distressed companies. While the fund appears ready to be launched, no word has been given on who will head it up.
