‘Infra good substitute for bonds’

While the need to invest in infrastructure is obvious and capital is available, few projects are, Leo de Bever, chief executive of Alberta Investment Management Corporation (AIMCo), told Infrastructure Investor in the wake of AIMCo’s annual report release.

This is a shame, given that, in the current low interest rate environment, “infrastructure is a good substitute for bonds – although it is not the same, there are more risks involved,” the AIMCo boss added.

“What disturbs me the most is that when I look at the next 10 years I see the need to improve our social infrastructure to help support economic growth, but there isn’t much activity to that end,” he said.

One example de Bever cited was that of the Columbia River Crossing, a bridge that connects Vancouver, Washington with Portland, Oregon.

Originally built in 1917 and upgraded in 1958, plans to replace the bridge have been ongoing since 2005. Concerns about the impact construction of a new bridge would have on the environment and the surrounding communities, as well as politics have led to the project being pulled off the table after eight years of debate.

“It’s a bit frustrating,” de Bever said, referring to the slow process and the obstacles that get in the way of approving projects.

Still, the market is not bereft of opportunity, with the fund manager’s native homeland of Alberta presenting an attractive one amidst cheap energy resources and rich oil sands.

“If you take a fresh look at the energy resources themselves and look at how you can exploit them, the combination can be powerful,” he said. “We’d like to be a part of that.”

But as technologies emerge the question is which ones will be viable. “In that sense, these opportunities are more like private equity rather than infrastructure – they are higher risk but they also have a potential for higher returns.”

Of the $70 billion in assets the Canadian firm manages on behalf of its pension, endowment, and government fund clients, 4.4 percent or $3.1 billion is allocated to infrastructure. The portfolio, which returned 8.1 percent net of fees in 2012, was 1.4 percent below its benchmark, according to the annual report the fund manager released last week. This was primarily due to recently-acquired larger assets that are still at the earlier stages of their investment lifecycle.

Still, AIMCo managed to outperform the market in 2012. “The total $1.6 billion of incremental return over market is the largest in AIMCo’s five-year history,” de Bever stated in the report.

Asked whether the fund manager intends to invest more heavily in infrastructure, de Bever said: “The general principle is that we do not make specific allocations; we are more opportunistic. If we see an opportunity we will invest in it.”