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Top 25 North American Public Pension Funds Investing in Infrastructure - June 2014

by Brian Chung

  • 30 Jun 2014
  • INF

Preqin’s Infrastructure Online service currently tracks 182 North America-based public pension funds investing in the infrastructure asset class. The top 25 public pension funds based in North America by allocation to infrastructure have aggregate assets under management of more than $1.5tn. On average, these 25 public pension funds have a current allocation of 5%, just below the average target allocation of 6%.

Forty percent of the top 25 North America-based public pension funds are located in Canada.  Of these Canada-based firms, 90% have established separate infrastructure allocations as Canadian investors are among the most active in the world. One example of a Canadian-based public pension investing in the asset class is the Ontario Teachers’ Pension Plan. In the next 12 months it will be committing to globally-focused unlisted funds, while also investing in direct projects in emerging markets, specifically Turkey and Brazil. In the US, of the remaining 60% of top 25 public pension funds, only 33% have established separate allocations. An additional 33% invest through a real assets allocation, with the remaining 34% of pensions investing in infrastructure through their private equity portfolios, general alternatives allocations, and inflation-linked assets allocations.

Future investments in the asset class will come through different routes to market. Direct investments will be pursued by 36% of the top 25 North America-based public pensions as these large investors possess the capabilities to invest in projects directly. Unlisted funds will continue to be the primary route to market for these pension funds as 72% will invest or consider investing through unlisted funds going forward. Listed infrastructure funds will be favoured by only 8% of top public pensions in North America.

Large public pensions are also able to utilize economies of scale meaning they can invest through different structures including co-investments, given that it requires significant internal resources. Co-investments are utilized or considered by at least 64% of these investors.  First-time infrastructure funds are considered or have been invested in by at least 52% of the largest North America-based public pension funds investing in infrastructure. One such example of a large public pension fund investing in first-time infrastructure funds and through co-investment structures is the Michigan Department of Treasury. The $58bn pension fund will commit between $50mn and $200mn to one or two unlisted infrastructure funds primarily focusing on North American assets.

In conclusion, as these top pension plans are, on average, under allocated to infrastructure, they will continue to use their significant amount of capital to fill their target allocations. For instance, the Virginia Retirement System, the $64bn public pension fund will continue to seek new commitments to unlisted and direct infrastructure investments by targeting various industries in the next 12 months.

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