Infrastructure investing for pension funds

Infrastructure investing sounds like the solution to pension fund problems. What’s the catch?

Infrastructure is continuing to see interest from institutional investors.  Savvy investors are getting more selective as its perceived benefits of infrastructure have often proved elusive.

Infrastructure’s supposed characteristics – steady yield, low volatility and low correlation to other asset classes – are thought to be a good fit with pension funds.

However, investment selection is critical: recent bfinance analysis indicated that over a third of infrastructure investments ultimately generate losses for investors.

Investors should be careful to select an appropriate security (i.e. debt or equity), approach (i.e. distressed, core or value add) and associated risk-adjusted return (i.e. entry pricing and return assumptions) on a case-by-case basis.

For instance, now may not be the best time to invest in infrastructure assets through equity. Many funds have already raised capital that is competing for a narrowly defined pool of deal flow.  Prices have increased for marquee assets and terms are weaker.