Pension Funds Investing in Infrastructure

by Elliot Bradbrook

  • 24 Jul 2012
  • INF

A conservatively managed infrastructure investment portfolio is commonly understood to provide investors with long-term predictable returns and increased portfolio diversification. It also acts as a hedge against inflation. As a result, infrastructure investment attracts institutional investors with long-term liabilities to meet, such as the various different types of pension scheme. Pension funds, therefore, are a staple of any successful infrastructure fund manager’s client base, and represent a significant proportion of the total number of institutional investors actively making investments in the asset class.

Public pension funds, private sector pension funds, and superannuation schemes make up a significant 40% of the active global infrastructure investor universe. Over 1,500 active investors are featured on the Preqin Infrastructure Online database, with public pension funds the most prevalent (18% of the total). Private sector pension funds follow closely, accounting for a further 17%. Superannuation schemes represent 5% of all active investors, most of which are based in Australia and are typically experienced players in the market.

In terms of location, Europe is one of the main hubs of infrastructure investment activity.  Thirty-nine percent of all active pension plans in the infrastructure space are based in Europe, with 18% located in the UK alone.  North America is also a significant base for pension plans making investments in infrastructure.  Canada represents 9% of the total universe and is home to some of the largest and most experienced infrastructure investors in the world, while the US accounts for 27% of the total universe.  A quarter of all pension plans active in the infrastructure space are based outside Europe and North America.  Australian institutions, most of which are structured as superannuation schemes, were among the pioneers of private sector investment in infrastructure assets in the 1990s and now account for a significant 13% of the universe.

The various types of pension plans investing in infrastructure have aggregate assets under management totalling $8.4tn. Across the whole sample, these investors maintain an average current allocation to infrastructure amounting to 3.3% of total assets, and an average target allocation of 5%. These statistics differ depending on the country and region – for example, Canadian pension plans have an average current infrastructure allocation of 4.6% and an average target allocation of 7.5%, whereas UK-based institutions maintain an average current allocation of 3.6% and an average target of 5%.

Superannuation schemes typically allocate higher levels of capital to infrastructure assets – these institutions currently allocate 6% of total assets to infrastructure on average, with an average target allocation of 8%. Private sector pension plans follow, with an average current allocation of 2.8% and an average target of 5%. Public pension plans also have an average current allocation of 2.8%, but a lower average target allocation of 4.3%.

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