Sovereign Wealth Funds
Dear Pension: Can You Please Pay For My Infrastructure?
Not without easy and direct access.
November 29, 2011
We knew this day was coming. Western governments have finally come to recognize that they: 1) are broke; 2) are unable to repair (or build) their dilapidated (or non-existent) infrastructure; 3) are looking for ways to spur domestic growth (i.e., by investing in infra); and 4) are increasingly keen to tap into the $70 trillion sitting in the world’s institutional investors. Here are some of the most recent examples:
- New York says it wants its pensions to finance bridges.
- The UK wants its pensions to build roads and railways.
- And China, for its part, doesn’t want to miss out on all the infrastructure goodies that will undoubtedly be privatized over the coming few years.
So perhaps we’ll finally see the massive wave of privatization of infrastructure assets that some have been expecting? No doubt the pension funds would be quite keen on this, as they like the asset class (for a variety of reasons). Indeed, all the people rattling on about ‘win-win‘ situations with respect to infrastructure needs and pensions’ interest in infrastructure…are right!
But, sadly, that doesn’t mean investors will jump at any of these new opportunities to invest in infrastructure. Why? Because the problem isn’t the appetite these funds have for the asset — the problem is a lack of viable and effective ways to access the asset class. Put simply, there is no easy mechanism (for now) that allows long-term investors to invest in infrastructure in a fully aligned and cost-effective way. It simply do esn’t exist.
Even the new Osborne plan in the UK seems a but murky on the issue of access; the news articles I saw simply said that the country would try to unlock pension assets for infrastructure in the same way the Canadians have done. For real? So does that mean we can expect the UK to help their pension funds develop large in-house teams with high levels of expertise (and high salaries) in order to make direct investments? Because if this isn’t the plan, then the UK’s not really doing what the Canadians did.
Anyway, whatever the case, this is a step in the right direction. But ultimately this discussion will have to be redirected towards the mechanisms to facilitate “easy and direct access”. Stay tuned.
This post originally appeared on the Oxford SWF Project.