Infrastructure – Feature
THE RISE OF INFRASTRUCTURE
Infrastructure is attractive to long- term investors needing regular cashflows. The future looks bright. Andrew Holt reports.
For institutional investors, infrastructure is a portfolio diversi- fier with benefits. The good news is that the outlook for the asset class teases plenty of opportunity for investors to collect secure, regular cash returns. The government faces a steep upgrade and modernisation bill, which could be good news for long-term investors, such as pension schemes. “Infrastructure is seen as a diversifier – you can define that mathematically in terms of correlation co-efficiency – but you can also look at it in a more simplistic way, in that you can achieve returns which are equity like, with some of the charac- teristics of the debt market and with typically lower volatility,” says Ted Frith, chief operating officer at GLIL Infrastructure. But Stephen O’Neill, Nest’s head of private markets, warns that you have to select the right assets. “It’s clear that when chosen and managed carefully, unlisted infrastructure equity assets can offer stable, long-term returns even in difficult market con- ditions. These also provide a diversifier for growth away from equities.”
This attractive mix has understandable appeal 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 or 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
This 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 inno- vation is happening, with investors having the chance to share in and exploit many of the infrastructure initiatives taking place. For example, for Britain to meet its climate goals, accounting firm PwC estimates that infrastructure spending would have to double to £40bn a year.
And pension funds have a massive role to play in boosting and benefitting from this outlay. The unlikely advocate in this sce- nario 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
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