We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".

Continue

Features

Twitter board

Follow us
  • My week on Twitter 🎉: 2 Mentions, 3.3K Mention Reach, 5 Likes, 6 Retweets, 7.76K Retweet Reach. See yours with… https://t.co/IZfviidt4H16 hours ago
  • Friday View: Trustees feel the heat over climate change - bankers' pensions back in black - TPR suspends trustee -… https://t.co/kUKa8QUF9w3 days ago
  • Increased regulatory oversight will be risk-based, TPR keyperson will meet schemes deemed riskier several times a y… https://t.co/wUiKPGESaU5 days ago
  • Lesley Titcomb, TPR chief executive says change is on its way, the regulator will increase oversight between valuat… https://t.co/Wu8Pv6TfqS5 days ago
  • Join us and @AonRetirementUK on the 4th of July at the luxurious Victorian Bath House featuring educational presen… https://t.co/r1abr8Qls06 days ago
  • DWP wants trustees to feel the heat over climate change https://t.co/bs25DvyWGF #ESG #climatechange https://t.co/dZEXB0g8a46 days ago
  • My week on Twitter 🎉: 3 New Followers. See yours with https://t.co/mCw3VcMQGw https://t.co/3kEHNr3xyz7 days ago
  • Friday View: Heathrow's ÂŁ325 million buy-in - Auto enrolment for the gig economy - Brunel opts for ACS structure -… https://t.co/vsnML1Vzb510 days ago
  • Pimlico Plumbers- Could gig economy workers be auto enrolled? https://t.co/qgrlWxMUW8 #gigeconomy #autoenrolment… https://t.co/wnDH18iPxG10 days ago
  • RT @eVestment: Workers in the #UK are open to increasing their retirement savings and tend to place greater emphasis on workplace #pensions…11 days ago
  • The June issue of portfolio institutional is now out: Featuring our take on #carillion and lessons for trustees as… https://t.co/yC2PNgoaPr12 days ago
  • RT @PensionsSion: Aon's very own John Belgrove shares his views in this piece. Worth reading... https://t.co/VYEJWjAU3z12 days ago
  • My week on Twitter 🎉: 2 Mentions, 3.29K Mention Reach, 2 Retweets, 3.27K Retweet Reach. See yours with… https://t.co/MeoES7Ch3L14 days ago
  • Friday View: South Yorkshire hedges pension risk- Recruitment execs face prison over pension scam - Johnston Press… https://t.co/9fV8Z48WtF17 days ago
  • RT @cfjescott: A recent piece of mine on the @CMAgovUK investigation into investment consultants in @portfolio_inst #investment https://t.c…19 days ago
  • Our ESG Roundtable: Better Long-term outcomes? Available to download now https://t.co/o7T8kWSwWY https://t.co/oHs4VlRK9E21 days ago
  • Active vs Passive : In 2016 investors withdrew around $285bn from active funds and pumped almost $429bn into passiv… https://t.co/tjpxhTxW5Z21 days ago
  • RT @WhtstheDiehlio: .@AitkenRL spoke with @graniteshares CEO Will Rhind about the ongoing active vs. passive debate. Check out their though…21 days ago
  • Green is the new black. A record sum is expected to be raised under the green bond banner this year, but is it doom… https://t.co/JYP8k0ZfZk23 days ago
  • Our Cover Story! Property: Solid Returns - Low gilt yields are forcing schemes to pile into bricks and mortar. Mark… https://t.co/9nyjFp0Z4R23 days ago

Alternatives

Bridging the $94trn gap

Bridging the $94trn gap

Mark Dunne
Friday 15th December 2017

The global need for infrastructure investment is huge and pension schemes are searching for long-term income. Mark Dunne asks if they could be the answer to each others prayers.

“As long as the asset is throwing off cash, I don’t think pension plans are too concerned about illiquidity.”

Lee Mellor, Ancala Partners

Pension funds have a fondness for the boring and predicable. This desire, however, has caused concern among trustees in recent years.

Yields on 10-year UK government debt collapsing below 1.3% have left many schemes short of the cash needed to pay member benefits. To avoid selling assets to raise the funds needed, some schemes have sought to boost their income by taking on more risk. This has put infrastructure on their radar.

Roads and bridges are creaking in the developed world thanks to decades of under-investment, while new structures are needed to serve growing populations and rising prosperity in the emerging markets.

The estimated cost of such a modernisation programme is staggering. A $94trn investment is needed by 2040 to provide adequate global infrastructure, according to forecasts by the Global Infrastructure Hub.

Private capital will be needed as it is clear that governments will not be able to pick up such a big tab on their own.

The UK is one example of where private capital will be needed to upgrade aging assets. By 2020 government spend in this area is forecast to fall to 1.4% of GDP, down from 3.2% in 2010, according to RICS.

There is an appetite from the private sector to fill this gap. A global survey of institutional investors published in November found that interest in infrastructure is high. The survey – Investor Perceptions of Infrastructure 2017 by the Global Infrastructure Hub and EDHEC Infrastructure Institute-Singapore – found that 90.3% of institutions want to increase their investment in this area, up from 65% last year.

Advisers are also bullish. In October a report from infrastructure and private equity manager Foresight showed that 59% of those supporting institutions expect to see a higher demand from their clients for exposure to the sector.

The report pointed to infrastructure becoming an increasingly popular asset class due to it mitigating some of the biggest headwinds facing portfolios, including volatility, market corrections and inflation. There is also another key reason why interest in bridges, roads, ports, broadband connections and water and energy storage and distribution networks is high among pension funds: It is the lure of stable, predictable and inflation-protected long-term income streams.

“Infrastructure offers a unique total return profile with diversifying characteristics relative to equities and bonds,” says Marc Haynes, senior vice president at Cohen & Steers. “From a portfolio allocation perspective, it can help reduce portfolio risk and it can provide a degree of downside protection.”

At the lower risk end of the spectrum, large regulated utilities are reported to yield between 4% and 7%. For those wanting to take on more risk by investing at the development phase of an asset, returns as high as 8% to 12% are available.

Those managing the VT Gravis UK Infrastructure Income Fund say it’s on course to yield 5%, a favourable return compared to the 1.3% risk-free rate.

Kempen Capital Management manages €200m of infrastructure assets. Interest in this area from larger schemes has increased in the past few years and senior portfolio manager Marvin de Jong is seeing more mid-sized funds (€1bn to €5bn under management) follow their lead.

One fund active in the infrastructure space is Local Pensions Partnership (LPP), which manages the assets of Lancashire County Pension Fund and the London Pensions Fund Authority. Investment director Jonathan Ord points to stable investment returns and inflation-linked cash-flows as attractions.

The ÂŁ1bn fund owns wind farms and trains in the UK, renewable energy assets in Portugal and a gas distribution business in Madrid.

Page: 1 2 3
0

Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!

Friday View

Friday View

How investor action helps cut CO2 emissions