Pensions fall short of infra target allocations

An analysis of 71 pension funds found an average current infrastructure allocation of 3.1%, despite a stated average target of 4.96 percent.

Recently, Infrastructure Investor Research & Analytics reported that The Employees Retirement System of Texas will make a significant amount of new investments into infrastructure over the next five years in order to reach its new allocation to the asset class. Infrastructure is a relatively new asset class to the majority of pension funds across the globe and many are still falling short of their long term target allocations. 

Infrastructure Investor’s Research and Analytics team has analysed a sample of 71 pension funds that proves this. This would suggest that hundreds of billions of dollars are set to be invested into the asset class over the next few years.

The analysis found that pension funds within the sample had an average target allocation to infrastructure of 4.96 percent and an average current allocation of 3.1 percent. Sixty-one pension funds were either at or below their target allocation to infrastructure, with only 11 being over-allocated. Within the sample, Canadian pension funds had most of the largest target allocations, raising no eyebrows. 

The Ontario Municipal Employees Retirement System (OMERS) has a 20 percent target allocation and is currently under-allocated to it by 4 percent. OMERS has been traditionally focused on Canadian energy assets, but it recently opened a new office in Hong Kong to take advantage of opportunities in Asia. Also of significant weight was AustralianSuper, which has a 14 percent target allocation and an actual allocation of 9.33 percent.  Unlike OMERS, this pension fund has a much more diverse sector focus.  

The sample pension fund that is currently the most under-allocated to infrastructure is the Alberta Teachers Retirement Fund Board, which is 7.51 percent below its 10 percent target. The pension told us that they may make two to three commitments to unlisted infrastructure funds in 2013 to help reach their target.

So why are pension funds so attracted to infrastructure? One Canadian pension fund told the team that it was the low volatility that attracted them to the asset class. Another Canadian pension fund stated that they simply saw high growth opportunities in the asset class at present. A more commonly cited motive of inflation hedging has also been cited by many Local Government Pension Systems in Britain and Scandinavian pension funds.