Feature – Infrastructure
definition of infrastructure broadens, is projects lacking scale and needing significantly more work to be investable.” For Graham, there are other ways the government can try to improve the situation. “It can maintain a consistent policy stance and reducing the time to get projects out of the plan- ning stage would help greatly,” he says.
Transition investment Nest’s chief investment officer, Mark Fawcett, offers a different perspective on the lack of infrastructure projects narrative: “We disagree,” he says. “If we consider the investment required to transition the world to a low carbon economy, then it is clear there are plenty of projects coming down the track. Also, with government debt across the world at heightened levels due to the pandemic, we should expect private capital to be in demand for a wide range of infrastructure investments.” Offering another perspective, Ted Frith, chief operating officer at investor GLIL Infrastructure, points to the influence of renewa- ble energy on the issue. “It’s not that there aren’t plenty of pro- jects out there, but the increased focus on areas such as renewa- ble energy, has made many a lot more competitive,” Frith says. “The infrastructure market has attracted a large amount of cap- ital looking to invest in these sectors, which in turn drives up the price,” Frith adds. “Investment opportunities have always relied on a range of factors lining up at the same time, but right now you need to work harder and be smarter to find the pro- jects that are appropriate, accessible and provide diversification for the fund.”
And Armanini adds: “It’s true that there has been a growing appetite for infrastructure assets, but we equally have seen a proliferation of investment opportunities, driven by macro trends such as digitalisation and the drive to net zero.” This in turn brings opportunities, Armanini says. “In Europe, where our investment activities are focused, there is an esti- mated €650bn (£544bn) of additional investment required per year by 2030 to fund the green and digital transitions, the European Economy Commissioner says. With public funds stretched following the Covid-19 pandemic, the private sector has a vital role to play in meeting these funding requirements.”
Project pipeline Pension funds are being proactive in this area, including the South Yorkshire Pensions Authority. “Our fund managers are working on larger scale renewable projects and addressing intermittency,” Graham says. “Directly, we are looking at ways to finance the bringing forward of major development sites, which includes things like the site infrastructure,” he adds. “These are all focused on providing income streams which are increasingly important given the fund’s cashflow dynamics.”
50 | portfolio institutional | March 2022 | issue 111
Government intervention is the most likely and most significant catalyst to increase the number of investable greenfield projects.
Paddy Dowdall, Greater Manchester Pension Fund
GLIL’s portfolio spans an array of projects, from renewable energy to logistics, transport, utilities and social infrastructure. “Recently, we invested in Invis Energy’s portfolio of 11 opera- tional onshore wind farms, which provide around 11% of the Republic of Ireland’s installed wind capacity,” Frith says. “We have also doubled our equity stake in Semperian, which invests in essential local services, such as schools and hospitals across the UK.” Frith adds an important point here. “Our fund members repre- sent pensioners from across the country. We are, therefore, supportive of providing better opportunities and public services wherever they are needed.”
Risk reward
When it comes to the risk-reward profile of infrastructure assets, this is placed at a centre of South Yorkshire Pensions Authority’s assessments. “We would regard projects of this sort as around the midpoint of our risk exposures as the income streams are fairly secure and for more local projects where we tend to be a direct investor we tend to act as a senior lender with step-in rights which reduces exposure further,” Graham says. “The rewards vary but the hurdle rates we use to determine which projects to consider give a margin over the actuary’s return assumption, which means we are achieving our core objective to ensure we have enough money to pay pensions,” he adds. From a Greater Manchester Pension Fund perspective, Dow- dall says: “We only make investments appropriate to our target- ed return and risk tolerance to meet stakeholders’ objectives.”
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