European Education
Training & Youth Forum 2015
Brussels, 19-20 October
Thinking ahead on financing
education & training
Stephen Wright
Signposts
• Introduction (me, & INTEGRATE)
• (How to make) Capital investment to
support Education & Training
• PPPs
• Infrastructure as a new investment
class
My credentials
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•
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A lifetime in market & investment appraisal
(energy, industry, social sectors, environment)
20+ years with the European Investment Bank:
set up & ran for a decade the advice function
for the education & health sectors
Set up a think-tank on the interface between
the infrastructure & services in health =>
consultancy (WHO, WB, EU MS)
Research Director for a new think-tank
(“INTEGRATE”) on long-term investment in
social infrastructure
“INTEGRATE”: think-tank, advocacy &
consultancy for social investment
2012
2013
2014
2015
Financial (pension funds, PF Associations, World Pensions Council, mutual
funds, insurance companies, National Development Banks, EIB, social impact
investors, asset managers, consultants)
Institutional (European Commission, Line-Directorates, European
Parliament, EU Presidencies)
Demand (Public Authorities, PA
Associations, syndicates, civil society)
Quiet conversations
From conversation to action –
INTEGRATE’s current focuses
ELTIF (Regulation)
“High-Level Task Force” on social investment
Juncker Plan: “Investment Platform” & ”Advisory Hub”
Pathfinder
regions
The service economy: it needs different
sorts of capital stock than before
Signposts
• Introduction (me, & INTEGRATE)
• (How to make) Capital investment in
Education & Training
• PPPs
• Infrastructure as a new investment
class
An integrated view of investing in
education capital (all are difficult to
value compared to “economic” infra)
• What is “investment” anyway? It’s not just
spending that you approve of!
• Human capital (direct): “…people’s knowledge,
skills, health & values…” (Becker). In practice,
difficult to invest directly in it (student loans,
teacher training… - but what else?)
• Physical capital (indirect): infrastructure
(buildings & equipment). In education, only
useful if it supports the development of human
capital
• Research, Development, Innovation…
Student lending: the theory
Human capital is owned by the individual:
• The student should pay for private HE
benefits received
• Societally, it’s better if “money follows the
student”
• With fees, extra financial resources are
generated for the sector
• Raised internal efficiency (reduced dropout & time taken for degree)
• Increased student mobility
But (in EU) expansion of student lending
is controversial
• “Philistinism” - commercial subject bias
• Debt aversion, especially of the
disadvantaged: lack of collateral (for
debt) or profit share (for equity)
• Parental guarantee is effectively needed
• Income-contingent loans are theoretically
more attractive than a mortgage – but
complex, with high default ratios, & what
to do about migrating students?
What about the impact of physical school stock
on educational attainment (how to measure)?
Inputs
Physical
school stock
School
facilities
School learning
environment
Outcomes
 ICT usage
 Service management
Teacher
behaviour
Pupil
behaviour
 Turnover
 Absenteeism
 Illness
Motivation
 Attendance
 Exclusion
 Vandalism
Educational
attainment
 Pupil scores
Job opportunities
Income
Unemployment rate
External socio-economic
environment
 Standards of building
 Utilisation
The Juncker Plan (“Investment Plan for
Europe”): €315 bn, multiply-leveraged
from a €21bn down-payment
Eight main categories:
a)
b)
c)
d)
e)
f)
g)
RDI
Energy & climate
Transport
SME + mid-cap
ICT
Environment & resources
Human capital, culture & health
Let’s ensure a) & g) get enough of it!
Realistically, mostly infrastructure, & mostly PPPs
Signposts
• Introduction (me, & INTEGRATE)
• (How to make) Capital investment in
Education & Training
• PPPs
• Infrastructure as a new investment
class
Interest rates are low - & most countries
do have fiscal space to borrow & invest
Source: IMF
Anyone with a green traffic light should be OK to invest in
infrastructure (wisely), from state sources
But most countries aren’t spending enough on infra –
partly, but not only, a Stability & Growth Pact issue
Who pays for public investment?
A PPP effectively converts asset ownership into
service purchase
In a PPP, the private Partner pays upfront for the
capital investment, & settles the ongoing operational
costs. But eventually the state pays 100% of the cost
of the project (unless there is a serious default by the
contractor, & even then…)
For a project, a state can borrow from the
capital/banking markets itself, or get a PPP Partner to
do that borrowing. Either way, the state pays for the
debt
Public investment by the state, or via
PPP? What PPP is usually not
“Private sector is more
efficient”
“Private finance is cheaper”
“Borrowing is off-balance sheet”
Perhaps, but not always
No, because of risk premium (a
government almost always
borrows cheaper than a private
firm in its jurisdiction)
Not economically, unless risk
transfer is very profound; the longterm burden remains with the
state. Eurostat rules tend
discourage this
PPPs & their governance
Two big issues with PPPs:
• Through-life flexibility. The closer the link
between the infrastructure & the services
delivered, the more that the contract has
to allow for change (where are schools in
this?)
• Profit-sharing. The private Partner takes
some risk ex ante, but it may turn out well
for him (NPDO?)
Signposts
• Introduction (me, & INTEGRATE)
• (How to make) Capital investment in
Education & Training
• PPPs
• Infrastructure as a new investment
class
Infrastructure as a “new” asset class
• Traditionally, the bulk capital providers to PPPs were
the commercial banks
• Banks’ balance sheets are now being restricted
• Also, banks are the wrong funders for long-term
projects; they borrow short & lend long (maturity
transformation or liquidity mismatch?!)
• There is a growing effort to bring in the Long-Term
Institutions (Pension Funds, (Life) Insurers, Sovereign
Wealth Funds, Endowments) - infrastructure as a
separate class of investment from equities, real
estate, government/commercial bonds
• Irrespective of the source of capital, a PPP investor
does not legally own an asset, he only owns a
contract
Finding the potential
There’s cash out there: how to access it?
Barriers to institutional investors’
infrastructure allocation
For good fiduciary reasons, long-term investors need a
positive real rate of return - from the state, as payer
Concluding questions:
1. How to ensure that appropriate quantities
of Juncker Plan money go to social
capital, including Education & Training?
2. How to maximise direct investment in
human capital?
3. In practice, JP is going to be, mostly,
infrastructure PPPs. How to ensure good
governance?
4. How to structure a PPP payment stream
which is attractive to long-term investing
institutions (above zero real rate of return)
but affordable (to the state as payer)?