U.S. Pension Funds Boost Infrastructure Investments
Cash-strapped governments look to pension money.
BY Caroline Cakebread | September 16, 2011
A recent article in Institutional Investor magazine says that U.S. public pension funds are boosting their infrastructure investments. As cash-strapped governments seek capital to build and repair key infrastructure, pension funds are meeting the need, creating a surge in demand for infrastructure managers. In a 2009 report the American Society of Civil Engineers estimated that the U.S. would need $2.2 trillion through 2014 for pipelines, highways and ports. Private partnerships or unlisted funds remain the main vehicles for pension investment. Read the article below:
Big U.S. public pension funds sat on the sidelines during the financial crisis, but now they are boosting their infrastructure investments. There are plenty of opportunities as cash-strapped governments search for capital to build, repair and run everything from airports and power grids to bridges and waste facilities.
As demand has surged, infrastructure managers have followed. “The need is real, present and sizable,” says Scott Sinha, Boston-based director of research in the infrastructure investment group at RBC Global Asset Management. In a 2009 report the American Society of Civil Engineers estimated that the U.S. would need $2.2 trillion through 2014 for pipelines, highways and ports.
Fundraising is heating up again. After a record 46 private investment funds launched globally in 2008, representing $37.3 billion, only 18 opened in 2009, which saw a mere $8.4 billion raised, according to London research firm Preqin. But the pace quickened in 2010, when $31.6 billion was raised. Today, Preqin counts 220 private partnership managers dedicated to infrastructure.
Infrastructure projects work best when the host government takes a programmatic rather than a one-off approach, says Christopher Leslie, CEO of Macquarie Infrastructure Partners, a division of Sydney-based Macquarie Group that manages $5.6 billion in two North American funds. New York–based Leslie adds that 25 U.S. states are embarking on infrastructure programs.
Fee restructuring is another draw. Infrastructure funds take three to five years to invest, says Michael Underhill, founder and CIO of Capital Innovations, a discretionary infrastructure adviser in Hartland, Wisconsin. With $165 billion raised worldwide in the past five years, there’s a backlog of unused capital. At the Sacramento-based California Public Employees’ Retirement System, $645 million awaits deployment.
Private partnerships, or “unlisted” funds, the main vehicle that pension funds use to access infrastructure, once charged limited partners a 2 percent management fee while sitting on cash. They’re now limiting fees to invested capital and reducing carried interest. (click here to read the full article)