Pension fund investment in infrastructure

Although traditionally the preserve of governments and municipal authorities, infrastructure has recently become an asset class in its own right for private sector investors- most notably pension funds

Historically, pension funds have tended to invest mostly in "core-assets" such as money market instruments, government bonds, and large-cap equity, and, to a lesser extent, in "alternative assets" such as real estate, private equity and hedge funds, the average allocation to infrastructure representing only 1% of total assets under management by pensions- excluding indirect investment through ownership of stocks of listed utility and infrastructure companies.

But government disengagement from the costly long-term financial commitments required by large infrastructure projects in the wake of the 2008–2012 global recession, combined with the progressive realization that infrastructure could be an “ideal asset class” providing tangible advantages such as long duration- facilitating cash flow matching with long-term liabilities, protection against inflation and statistical diversification (low correlation with ‘traditional’ listed assets such as equity and fixed income) has prompted an increasing number of pension executives to consider investing in the asset class- this macro-financial perspective to pension investment in infrastructure was developed by Canadian and European financial economics experts, notably the World Pensions Council (WPC).

Pension funds- including superannuation schemes account for approximately 40% of all investors in the infrastructure asset class, excluding projects directly funded and developed by governments, municipalities and public authorities. Large Canadian pension funds and sovereign investors have been particularly active in the field of energy assets such as natural gas and natural gas infrastructure, where they have become major players in recent years

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