Feature
It’s not that there aren’t plenty of projects out there, but the increased focus on areas such as renewable energy has made many a
lot more competitive. Ted Frith, GLIL Infrastructure
risk profiles of various asset classes available to pension funds, with a particular focus on alternatives, such as private equity, infrastructure and hedge funds. “Drawing on the Pensions and Investment Research Consult- ants’ annual review, we found that return for unit of risk is highest in these alternative assets, including property, provid- ing a compelling financial case to invest in these asset strate- gies,” the Institute’s Gordon says.
Infrastructure interest
The reason institutional investors want exposure to infrastruc- ture is usually threefold: the long-term investment associated with the asset class, ESG or social impact motivations, and the inflation-linked flows.
“The income streams from investments of this area are increasingly important for a maturing scheme like ours and are a key part of meeting our primary objective,” says Graham of the South Yorkshire Pension Authority. “That they also sup- port our broader goals in terms of sustainability. And they are more attractive than other investments that do not have the full combination of these characteristics.” For Dowdall, there is a main reason why the Greater Manchester Pension Fund invests in the asset class. “All three can be achieved, but the primary aim always has to be the long-term inflation linked cashflows to pay our pension liabilities,” he says. 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.”
INFRASTRUCTURE AND LEVELLING UP
The Levelling Up whitepaper offers many positives on the infrastructure front. “Infrastructure investment represents an integral part of the government’s Levelling Up agenda, and it will be interesting to see how private capital can be invested to help rebuild key public services, such as schools, roads and hospitals across the regions,” says Ted Frith, chief operating officer at infrastructure investor GLIL. In tandem with this, the UK Infrastructure Bank is attempt- ing to identify the most pressing and viable projects in need of funding for local, regional and devolved adminis- trations. “If it plays this role successfully, it could spark a surge in infrastructure investment that will help regenerate our economy and support the needs of local communi- ties,” Frith says. “For funds like GLIL, the UK Infrastructure Bank and Lev- elling up agenda present a significant development in the market, but what we ideally need is for our local and regional leaders to be clear about their investment priori- ties, so that we can assess the projects,” he adds. “The government is facilitating this, and the UK Infrastructure Bank is an important step.” For Sarah Gordon, chief executive of the Impact Investing Institute, the Levelling Up whitepaper and the ambitious goals it lays out is a welcome step forward – particularly the announcement of a 5% local investment target by local government pension schemes. “This new target will encourage pension schemes to con- sider the real opportunities presented by investing for impact in UK towns, cities and regions across all of the investment opportunity areas that make up our place based impact investing model – from SME finance to infra- structure,” Gordon says. The announcement, however, is only half of the story, Gor- don says. “If the ambitious aims of the whitepaper are to be met, and pension funds fulfil their 5% target, local schemes will have to be supported by government along with other organisations to allocate to these types of investments.”
May 2022 portfolio institutional roundtable: Private markets 31
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