Editorial
Mark Dunne Editor
m.dunne@portfolio-institutional.co.uk
The £483bn opportunity
Regular readers of this magazine will know that I get a warm glow from institutional investors who manage to combine making adequate risk-adjusted returns to serve their needs while providing a benefit to society.
Increasing the supply of residential properties has been an obvious problem that those responsible for huge pots of capital have helped solve. It’s a win-win situation; ease the housing crisis while receiving a regular cash income. Repairing and upgrading the UK’s infrastructure is another asset class that could benefit long-term investors and society alike.
The UK has a £483bn bill to modernise and fix its roads, communication networks and energy generation capacity among others. The government cannot pick up the tab on its own, giving institutional investors an opportunity to step in. This comes at an almost perfect time for defined benefit (DB) pension schemes. Many have ditched their growth assets in the past year or two to focus on cash-generative invest- ments to pay their members’ benefits in full and on time.
They are thinking more like insurers than pension schemes these days. Indeed, in the past year they have doubled their exposure to alternative assets to 20% of their portfolio, but, despite this, schemes are slow to take the infrastructure opportunity. The situation is worse in the defined contribution (DC) world where investment in infrastructure is almost non-existent. Perhaps the lack of liquidity is deterring them from increasing their exposure to such assets as they may not help secure a buy-out. Workplace pension providers also have cost restrictions and there are many other alternative assets that trustees can pick from, such as private debt.
Whatever the reason, institutional asset owners are not boosting their allocations to roads, bridges, wind farms and broadband networks at a time when they are focused on assets that generate long-term, secure and regular cash-flow. Our cover story this month looks at why not enough institutional debt and equity is flow- ing into such assets. Our coverage starts on page 26.
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