Feature – Infrastructure
But for Sarah Gordon there are more than three attractions. “Investments in infrastructure have a powerful multiplier effect and can play a critical role in supporting local communities and the local economy – improvements to infrastructure can help to unlock an area’s potential and support improvements in a myr- iad of other areas, from the viability of new homes to access to education and work opportunities,” she says. Stressing the investor benefits of infrastructure, Armanini says: “Infrastructure assets typically benefit from strong incumbent market positions, which can protect investors from wider market volatility and offer resilience during economic downturns. The essential nature of infrastructure assets can represent a reliable foundation for delivering returns that are uncorrelated with other traditional asset classes.”
Aligning objectives
Infrastructure is also a diversified asset class, ranging from clean energy through to transport and digital communications. “This range means institutional investors can select the oppor- tunities which most align with their overriding objectives – whether this be predominantly climate-focused, social-focused or otherwise,” Gordon says.
Investment in real assets, like infrastructure, can also provide income streams as they are underpinned by revenue generat- ing models, with returns often inflation-linked, providing a particularly good match for pension payments. “Investing in local infrastructure is therefore a compelling example of our place-based impact investing approach – secur- ing risk-adjusted financial returns while enhancing local resil- ience, advancing regional development and improving peo- ple’s lives,” Gordon says. Fawcett also sees the advantages for Nest’s members. “We think illiquids present great opportunities for our members as a source of higher and more stable returns. Our members are investing for decades, in some cases up to 50 years, so we can put their money away for the long-term and help generate an illiquidity premium.” In addition, Fawcett adds other attractive factors for investors. “Global unlisted infrastructure has shown itself to be a strong performer, fairly insulated from the performance of the global economy. We believe this will continue and be a useful diversi- fier of our portfolio, while reducing our reliance on other growth assets such as equities,” he says. “The direct relation- ship with the asset can also help us manage key ESG risks. In particular, we believe investing directly into green energy infra- structure will play an important role in helping us achieve our net-zero ambitions.”
Core of infrastructure For Ted Frith there is an essence in the attractiveness of infra-
52 | portfolio institutional | March 2022 | issue 111
structure. “Core infrastructure appeals to pension funds like our members because it offers long-term, stable cashflows and inflation-linked returns that align well with the liabilities of a pension fund,” Frith says. “Social and ESG-linked projects in particular also appeal to the objectives of our members and those they represent,” he adds. “After all, as well as fulfilling their primary fiduciary role, pen- sion funds also consider which investments are attractive for other reasons, and investors increasingly want to see money spent on reducing carbon emissions and tackling climate change.”
The focus on infrastructure investment has never been greater and, it represents a clear benefit to the broader economy, in terms of driving growth. “As well as playing a beneficial role in a portfolio, and helping to support the climate change agenda, infrastructure investment in general has a strong positive
NEST: AN INSIGHT INTO INFRASTRUCTURE INVESTMENT
Workplace pension provider Nest has taken a threefold infrastructure approach. Last year the master trust appointed three infra equity partners – CBRE Caledon, GLIL and Octopus Renewables – to invest in projects in the UK and around the world, with a particular interest in renewable energy. “The types of infrastructure Nest could invest in include fibre networks, electric vehicle charging hubs, water and waste treatment plants and roads,” says Nest’ chief investment officer Mark Fawcett. CBRE Caledon’s mandate is to help Nest invest directly in global core and core-plus infrastructure projects. “They provide access to an infrastructure fund sponsored by the firm, with the opportunity to also co-invest in select invest- ments to help Nest members take advantage of bigger projects,” Fawcett says. “GLIL Infrastructure is a unique organisation, representing a joint venture between a number of major local authority pension plans,” Fawcett says. “Nest will invest in the fund along with GLIL’s members, with its open-ended fund giv- ing
access infrastructure.”
Octopus Renewables is the largest investor of utility scale solar power in Europe, as well as a leading UK investor in onshore wind and biomass, managing a global portfolio valued at more than £3bn. “Nest has appointed the firm to boost its investment in clean energy infrastructure and has already deployed money into projects such as a solar farm based in Reading and biomass power plant in Brigg,” Fawcett says.
to new opportunities in UK core
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