Feature


Infrastructure is a portfolio diversifier with benefits. The good news is that the outlook for the asset class teases plenty of opportunity for institutional investors to collect secure, regular cash returns. The government faces a steep upgrade and mod- ernisation bill, which could be good news for long-term inves- tors, such as pension schemes, who could help fund their plans. “Infrastructure is seen as a diversifier,” says Ted Frith, chief operating officer at GLIL Infrastructure. “You can define that mathematically in terms of correlation co-efficiency or look at it in a more simplistic way, in that you can achieve returns which are equity like with characteristics of the debt market and typically lower volatility.” But you have to select the right assets, warns Stephen O’Neill, Nest’s head of private markets. “It’s clear that when chosen and managed carefully, unlisted infrastructure equity assets can offer stable, long-term returns even in difficult market conditions. These also provide a diversifier for growth away from equities.” Such an attractive mix understandably appeals to investors. “This has brought in many of the larger investors over the last few years,” Frith says. “Also, if you are a pension fund, you are making a real contribution to the facilities your pensioners might want to use, such as new trains, schools or hospitals and a contribution to the wider economy,” he adds. Nick Silver, co-founder of the Climate Bonds Initiative, adds: “Pensions should be investing in infrastructure because this is a ‘real’ asset.


“Infrastructure is also a good match for pension fund liabilities as it generally provides a steady inflation-linked return,” he adds.


Huge opportunities Infrastructure’s role in boosting UK plc can be seen as a big contributing factor for investors. It is also an area where a great deal of innovation is happening, with investors having the chance to share in and exploit many of the infrastructure initi- atives taking place. For example, for Britain to meet its climate goals, accounting firm PwC estimates that infrastructure spending needs to double to £40bn a year. And pension funds have a role to play in boosting and benefit- ting from this outlay. The unlikely advocate in this scenario is the government, which in its National Infrastructure Strategy sets out the enthralling prospects for pension schemes. “There is a huge opportunity for pension funds to support the UK’s infrastructure investment ambitions,” notes the strategy. It puts real numbers on these opportunities. “The industry anticipates that pension funds and insurers will be able to invest between £150bn and £190bn in infrastructure over the next 10 years.”


That is a big investment opportunity. There is also a good har- monisation benefit for long-term investors, such as pension


Dec-Jan 2022 portfolio institutional roundtable: Build Back Better 23


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