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Pension Funds Investing in Infrastructure – August 2012

by Elliot Bradbrook

  • 14 Aug 2012
  • INF

The vast majority of pension funds invest in infrastructure by making commitments to third-party unlisted infrastructure funds. Ninety-six percent of public and private sector pension funds, and superannuation schemes, actively investing in infrastructure look to make commitments to unlisted vehicles, while 19% make direct investments and just 9% target listed infrastructure funds. Although interest in direct investment is growing, unlisted vehicles will remain the primary route to market for pension funds in the future, meaning fund managers must continue to pay close attention to their needs and demands in order to be successful.

These institutions source capital for infrastructure investment from a number of different areas. Less experienced pension plans tend to invest via a general alternatives, private equity, opportunistic and/or real assets allocation, while the more experienced create separate infrastructure-specific allocations. Forty-four percent of active pension fund investors in infrastructure maintain a separate infrastructure allocation, while 19% invest via a private equity allocation, 15% via a general alternatives allocation, 13% via a real assets allocation, and a further 3% through an opportunistic investment portfolio.

In terms of regional focus, Europe is the dominant region for pension funds investing in infrastructure. A significant 53% of the various types of pension funds active in the infrastructure market favour investment in Europe, while 47% will invest in North America and 33% will invest in Asia and Rest of World. Aside from a focus on any specific region, many pension funds pursue a multi-continental investment policy in order to increase the diversification of assets held within their portfolio. Forty-three percent maintain a global investment mandate and consider investment in a range of different regions around the world.

The relative youth of the infrastructure asset class and a lack of available resources mean many pension funds utilize the services of an infrastructure investment consultant when making investment decisions. Of the 619 pension funds included in the sample, 55% are known to make investments based on the recommendations of a consultant, and 11% use the services of an internal in-house advisory team. Experienced and popular infrastructure consulting firms include Hewitt EnnisKnupp, Hymans Robertson, JANA Investment Advisors, Mercer Investment Consulting and Towers Watson.

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