A decade is like a century in infrastructure. Sitting on a panel at Infrastructure Investor's Global Summit in Berlin today, chief investment officers from blue-chip LPs zoomed in on the changes their dedicated strategies have gone through in a short time span.
Erik van de Brake, head of infrastructure at Dutch-based PGGM, highlighted the pension's move away from fund commitments towards direct investments since 2008-2009, a move underpinned by the institution's rise in assets under management.
Mike Jensen, co-CIO at the Local Pensions Partnership, detailed his efforts over the past seven years to implement an infrastructure strategy within UK local authority pension funds. These previously had very little invested in infrastructure, he said, which was “very strange given that the asset class represents the perfect match to [their] liabilities”. He reckoned local authority pensions' allocations to infrastructure may well come to reach 25 percent “in relatively short order”.
Asked to explain how the asset class compared to real estate, panellists seemed to think the question was not so relevant. “We try to earn a return in excess of our cost of capital,” said Eng Seng Ang, CIO for infrastructure at Singapore's GIC. “It's not a case of either real estate or infrastructure. It's a case of more of both.”
Jensen said efforts to compartimentalise the two asset classes were largely driven by consultants, the influence of which he described as “counter-productive, even dangerous at times”. “We're less concerned about names and titles than the characteristics of individual investments.”
Mike Powell, head of private markets at USS Investment Management, explained that his division straddles infrastructure, real estate and private equity, with staff from the three teams called upon during due diligence and deal execution. “It's all about the asset, as opposed to the asset class.”
He added that describing today's environment as “very competitive” was probably “an understatement”, and said such pressures were pushing USS to spend a lot of time working on existing portfolio companies. One reason behind this was that such investments posed a far lower risk. “In auction situations you don't really know what you own until you get the keys.”
Jensen remarked that competition was also a driver behind LPP's efforts to work with experienced fund managers and strategic players. In the case of GIC, Eng Sang said joint ventures and platforms were at the core of the sovereign fund's attempt to target the greenfield segment. The latter, he said, were more efficient ways to gain exposure than investing in standalone projects.
Another disruptive trend under the spotlight was the convergence between infrastructure and private equity, with 20-year buyout vehicles now being offered to investors. “Such funds provide duration, which is attractive for us,” van de Brake said. On the other hand, he observed, some infrastructure managers “are moving towards a more PE-style approach to the market”. “The market is becoming more blended,” he concluded.