Roundtable

Infrastructure

The options for building a long-term income In theory, investing in infrastructure should provide pension schemes with long-dated, index-linked cashflows to meet their liabilities as well as access to the illiquidity premium. But the asset class has faced a number of headwinds in recent months, not least from the UK’s decision to leave the European […]

December 2016

The options for building a long-term income

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In theory, investing in infrastructure should provide pension schemes with long-dated, index-linked cashflows to meet their liabilities as well as access to the illiquidity premium. But the asset class has faced a number of headwinds in recent months, not least from the UK’s decision to leave the European Union in June. According to a recent paper by Standard & Poors, UK infrastructure has experienced a decline in funding of projects in the short term as a result of Brexit. S&P said this, combined with a weakening sterling, could change market fundamentals for infrastructure investment in the UK, while the willingness of the UK government to step in for the future remains unclear. But as with all asset classes in the post-Brexit landscape, there will be short-term volatility but the longterm case for infrastructure remains strong, backed by government intent. Indeed, last autumn the UK government, led by former Chancellor George Osborne, had been clear in its aspiration: for pension funds, particularly those in the Local Government Pension Scheme (LGPS), to play a larger role in financing domestic infrastructure projects. However, despite an obvious desire on the part of pension schemes, public and private, many have found the pipeline of investable UK-based infrastructure assets has run dry. Furthermore, the few opportunities that do become available are in high demand and most UK investors end up being priced out of the market by foreign investors with greater size and scale. Collaboration through LGPS pooling and the Pensions Infrastructure Platform is addressing the scale issue for smaller players, but the truth is for the majority of pension schemes it remains difficult to access infrastructure. Therefore, a stock of investable assets with government-backing is both highly desirable and necessary if the government wants to achieve its goal. That said, infrastructure is a diverse asset class and there are, of course, opportunities to be found. But with that comes many ways to access it, and whether listed or unlisted, debt, equity or direct investment, investors need to start from the perspective of what role infrastructure is playing in their portfolio – and then gain a full understanding of the underlying projects and contracts before committing. This roundtable featuring asset owners, managers and consultants, sheds light on investing in infrastructure by looking at the asset class in the post-Brexit landscape, as well as whether it is just for the big boys and the current opportunities – or lack thereof – in the market.

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