Infra investing by pensions edges up

While large pension funds and public pension reserve funds increased investments in infrastructure between 2010 and 2012, investment in the asset class is still limited, according to a new report released by the Organisation for Economic Cooperation and Development (OECD).

According to data from 46 large pension funds (LPFs) that completed a survey in 2010 and 2012, the average allocations to alternatives, which includes but is not exclusive to infrastructure, increased from 14.4 percent to 15.6 percent of the total portfolio over the two-year period.

Across-the-board comparisons were difficult given that different pension plans employed different investment approaches.

“Although the majority of funds surveyed stated they are actively investing in infrastructure, these total allocations are not comparable, as they relate to different forms of investing and often imply different understanding and perspective of the investment proposition in infrastructure,” according to the authors of the report, titled: “Annual Survey of Large Pension Funds and Public Pension Reserve Funds,” released this month.

For example, some institutional investors consider infrastructure as an asset class in its own right. These investors tend to access the asset class through infrastructure funds or direct investment.

Funds that do not target infrastructure as a separate asset class may categorise it under real estate or private equity.

The approach investors choose often depends on the maturity of the infrastructure market, the size of the pension fund, the regulatory environment, and experience in the sector, according to the report. As a result, different countries are at different stages of infrastructure investment.

“Further along the learning curve are the Canadian and Australian pension systems, with the first funds that started investing in infrastructure more than ten years ago having built up since then a significant allocation to the sector from 4 percent to 16 percent of [the] total portfolio,” the report found.

Of the 33 funds that completed the second part of the survey – infrastructure investment – Canada’s OMERS [Ontario Municipal Employees Retirement System] and Australia’s AustralianSuper reported the highest allocations to unlisted infrastructure of 14.8 percent and 10.3 percent of plan assets, respectively.

Europe is further behind, having started to build up its infrastructure allocation – either as a separate asset class or as a sub-category of real estate or private equity – just five years ago, with allocations ranging from 1 percent to 3 percent of the total portfolio.

Another trend the report revealed is an increasing interest in green investments, such as clean technology and renewable energy. However, none of the funds surveyed have a separate allocation for this category.

“In general, pension funds prefer to invest in large, mature operating assets that already generate cash flow although they will evaluate and participate in greenfield projects on an opportunistic basis,” the report stated.

The OECD surveyed 86 large pension funds and public pension reserve funds, which in total managed nearly $10 trillion in assets, more than one-third of the total assets held by this class of institutional investors worldwide. Sixty-nine of the 86 funds completed a survey, while data for the remaining 17 funds came from publicly-available information.

Three US pension funds were among the largest surveyed. They are CalPERS [California Public Employees’ Retirement System] with $248.8 billion in assets; CalSTRS [California State Teachers’ Retirement System] with $151.3 billion; and the New York City Retirement System with $130.0 billion in assets under management as of December 30, 2012.