A number of mandates have already been put out to tender in the UK and some large schemes there have already made significant investments.
The London Borough of Newham pension fund is to invest £30m (€44.6m) of its assets into infrastructure.
The UK council scheme, which is advised by consultant Hewitt Associates, has put out to tender for one or more managers to run the infrastructure portfolio.
The London Borough of Enfield has also decided to invest in infrastructure to add diversification and boost returns. Enfield is also being advised by Hewitt Associates for the tender process.
Enfield said it is taking a dynamic approach by investing 3 per cent, or £15m, of the fund’s portfolio in an asset class that it believes will yield good returns.
Enfield said that it may appoint one or more managers for the mandate.
UK high street store John Lewis is to invest £25m of its pension assets into the asset class in a bid to add diversification and generate greater alpha. The scheme has appointed a fund manager but was unable to reveal the details at this stage.
Dutch pension fund ABP, the world’s largest pension fund, committed €200bn of its assets into infrastructure earlier this year.
The scheme decided to invest in RWE Thames Water Holdings across the English Channel. ABP has been investing in infrastructure for the past three years and more pension funds are expected to follow as
the trend in the rest of Europe and the UK picks up.
Shalin Bhagwan, senior associate at Mercer Investment Consulting, said there has been a significant increase in demand for infrastructure in the UK and globally as more pension funds than ever are now investigating it.
“We are being asked to give our clients advice on this across UK and Europe and generally across the globe,” he said.
He pointed out that pension funds in Australia have been leading the way with infrastructure investment and have been investing in the asset class for some time.
Mr Bhagwan added that infrastructure investment was suitable for pension funds of all sizes, although some are better suited for those with larger assets as they can overcome minimum investment requirements.
“The trigger for UK pension funds looking at infrastructure is that many seek investments that throw off long-dated inflation-linked cash flows which are a better match for their inflation-linked liabilities,” he said.
Pension schemes are investing in infrastructure through both listed and unlisted funds.
The number of infrastructure funds recently launched has rocketed.
European listed private equity firm 3i recently indicated plans for a dedicated infrastructure fund management vehicle to meet pension fund demand.
ING Real Estate is expected to launch an infrastructure fund next year aimed at institutional investors.
KF
