Infrastructure is becoming increasingly popular with pension funds seeking long duration, reliable cash flow and inflation protection. Chris Panteli finds out more about the asset class
The demand for private sector involvement in infrastructure investments is increasing and is expected to lead to far greater availability of quality assets, the industry believes.
As indebted governments are no longer able to finance infrastructure as they once did, they are increasingly turning to the private sector as a source of funding in the form of utilities, transport and social infrastructure. In addition to new projects, many countries are in the process of privatising existing assets, opening up new opportunities for pension funds.
“It’s a very exciting time for buyers,” said Martin Lennon, head of Infracapita, the infrastructure investment arm of M&G Investments. “There is an unprecedented set of attractive investment opportunities available now and in the coming years.
“Certain governments need cash and so are in the process of or considering privatising assets such as the UK’s national air traffic control system and major airports in Spain. Similarly, some companies are disposing of non-core units, especially in the energy sector, which means the sale of transmission and distribution networks for gas and electricity, storage facilities and other well regulated assets.”
The world’s biggest funds have been investing in infrastructure for some time now, with Canadian, Australian and US schemes leading the way. Many have built up large in-house teams specialising in the asset class. Earlier this year the Canadian Pension Plan completed its largest infrastructure investment to date with two concurrent transactions involving the acquisition of a 40% interest in the 407 Express Toll Route near Toronto as well as an interest in a toll road in Sydney, Australia. CPP’s total initial investment amounts to C$4.1bn.
Meanwhile, Dutch pension fund manager PGGM last month formed a joint venture with infrastructure public private partnership investor BAM PPP in what the two say is the first deal of its kind in Europe. The partnership will invest in social and transport PPP markets in the Netherlands, Belgium, the UK, Ireland, Germany and Switzerland.
Henk Huizing, head of infrastructure at PGGM said: “This investment in PPP infrastructure assets – including transport and public buildings, such as schools – is aligned with the ESG criteria in the investment policy of our institutional clients.
“Furthermore, the inflation-linked returns together with the stable long-term cash flows of these PPP projects meet our clients’ interests. The revenues from the PPP projects are secured through long-term concession agreements with governments and are therefore considered to have a modest risk profile.”
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