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Pension Fund Investment in Infrastructure

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  • Georg Inderst

Abstract

As the need for investment in infrastructure continues to grow, private sector financing for infrastructure projects has developed around the world. Given the long-term growth and (potentially) low correlation aspects of infrastructure investments, pension funds have also shown interest in increasing their exposure to this area, along with their move into alternative assets. Such investments cover a wide spectrum of projects – from economic infrastructure such as transport, to social projects such as hospitals – and involve different forms of financing (primary vs. secondary, debt vs. equity, private vs. listed, direct vs. indirect). Data explaining the size, risk, return and correlations of this diverse asset class is therefore limited, which may be making pension fund investors cautious. Given investing in such assets also involves new types of investment vehicles and risk for pension funds to manage – such as exposure to leverage, legal and ownership issues, environmental risks as well as regulatory and political challenges – such caution may well be justified. However, if governments wish to help infrastructure developers tap into potentially important sources of financing such as pension funds, certain steps can be taken. This paper is designed as an overview piece, discussing if pension funds should invest in infrastructure on a theoretical basis, whether they do in practice, and, if not, how (and if) regulators can encourage and assist them to do so. Investissements des fonds de pension dans les infrastructures Les besoins en investissements dans les infrastructures continuant de croître, le financement de projets d'infrastructures par le secteur privé s'est développé dans le monde entier. Étant donné la croissance à long terme des investissements dans les infrastructures et la corrélation (potentiellement) faible de leurs rendements, les fonds de pension ont envisagé d'accroître leurs engagements dans ce domaine, parallèlement au développement de leurs placements alternatifs. Ces investissements portent sur une large gamme de projets – allant de projets d?infrastructure économique comme les transports à des projets sociaux comme la construction d?hôpitaux – et impliquent diverses formes de financement (primaire ou secondaire, dette ou fonds propres, titres cotés ou non, direct ou indirect). Les données relatives à la taille, au risque, au rendement et aux corrélations de cette catégorie d'actifs très diversifiée sont par conséquent limitées, ce qui peut inciter les investisseurs des fonds de pension à une certaine prudence. Étant donné que les investissements dans ces actifs impliquent également des instruments et des risques d?un nouveau type qu?auraient à gérer les fonds de pension (emprunts, problèmes juridiques et de propriété, risques environnementaux et problèmes réglementaires et politiques) cette prudence se justifie sans doute. Cela dit, si les pouvoirs publics souhaitent aider les responsables du développement d'infrastructures à avoir recours à des sources de financement potentiellement importantes comme les fonds de pension, certaines mesures peuvent être prises. Le présent document vise à donner un aperçu de la situation et examine la question de savoir si les fonds de pension doivent investir dans les infrastructures en théorie, s'ils le font en pratique et, dans le cas contraire, si et comment les responsables de la réglementation peuvent les encourager et les aider à le faire.

Suggested Citation

  • Georg Inderst, 2009. "Pension Fund Investment in Infrastructure," OECD Working Papers on Insurance and Private Pensions 32, OECD Publishing.
  • Handle: RePEc:oec:dafaab:32-en
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    File URL: http://dx.doi.org/10.1787/227416754242
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    Cited by:

    1. Inderst, Georg & Stewart, Fiona, 2014. "Institutional Investment in Infrastructure in Emerging Markets and Developing Economies," MPRA Paper 62522, University Library of Munich, Germany.
    2. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2014. "Finance and Public-Private Partnerships," RBA Annual Conference Volume,in: Alexandra Heath & Matthew Read (ed.), Financial Flows and Infrastructure Financing Reserve Bank of Australia.
    3. Bianchi, Robert J. & Bornholt, Graham & Drew, Michael E. & Howard, Michael F., 2014. "Long-term U.S. infrastructure returns and portfolio selection," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 314-325.
    4. Torsten Ehlers, 2014. "Understanding the challenges for infrastructure finance," BIS Working Papers 454, Bank for International Settlements.
    5. Daniel Wurstbauer & Wolfgang Schäfers, 2015. "Inflation hedging and protection characteristics of infrastructure and real estate assets," Journal of Property Investment & Finance, Emerald Group Publishing, vol. 33(1), pages 19-44, February.
    6. Mosolygó, Zsuzsa, 2010. "A tőkefedezeti rendszer alapkérdéseinek új megközelítése
      [A new approach to the basic issues raised by the PAYE system]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 612-633.
    7. Riham Shendy & Zachary Kaplan & Peter Mousley, 2011. "Toward Better Infrastructure : Conditions, Constraints, and Opportunities in Financing Public-Private Partnerships in Select African Countries," World Bank Publications, The World Bank, number 2331.
    8. Bresnihan, Patrick, 2016. "The bio-financialization of Irish Water: New advances in the neoliberalization of vital services," Utilities Policy, Elsevier, vol. 40(C), pages 115-124.
    9. repec:pal:gpprii:v:42:y:2017:i:4:d:10.1057_s41288-017-0042-7 is not listed on IDEAS
    10. Evgenios Tassopoulos & Sotirios Theodoropoulos, 2013. "Feasibility of the Development of Cruise Terminal in Lavrio Port under Concession Scheme," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 3-16.
    11. Nadine Gatzert & Thomas Kosub, 2014. "Insurers’ Investment in Infrastructure: Overview and Treatment under Solvency II," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(2), pages 351-372, April.
    12. Qile Tan & William Dimovski & Victor Fang, 2015. "The Underpricing of Infrastructure IPOs: Evidence from China," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-31, December.
    13. Thierry Theurillat, 2011. "La ville négociée : entre financiarisation et durabilité," Géographie, économie, société, Lavoisier, vol. 13(3), pages 225-254.
    14. Inderst, Georg, 2013. "Private infrastructure finance and investment in Europe," EIB Working Papers 2013/02, European Investment Bank (EIB).
    15. Inderst, Georg, 2015. "Social infrastructure investment: private finance and institutional investors," MPRA Paper 69504, University Library of Munich, Germany.
    16. Javier Alonso & Alfonso Arellano & David Tuesta, 2016. "Pension fund investments in infrastructure and the global financial regulation," Working Papers 16/19, BBVA Bank, Economic Research Department.
    17. Wouter Thierie & Lieven Moor, 2016. "The characteristics of infrastructure as an investment class," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 277-297, August.
    18. Hellowell, Mark, 2013. "PFI redux? Assessing a new model for financing hospitals," Health Policy, Elsevier, vol. 113(1), pages 77-85.
    19. Grelck, Michael B. & Prigge, Stefan & Tegtmeier, Lars & Topalov, Mihail & Torpan, Igor, 2010. "Investing in times of inflation fears: Diversification properties of investments in liquid real assets," Working Paper Series 03/2010, Hamburg School of Business Administration (HSBA).
    20. Ron Bird & Harry Liem & Susan Thorp, 2011. "Infrastructure: Real Assets and Real Returns," Working Paper Series 11, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
    21. Bitsch, Florian, 2012. "Do investors value cash flow stability of listed infrastructure funds?," CEFS Working Paper Series 2012-01, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).

    More about this item

    Keywords

    actifs alternatifs; allocation d'actifs; alternative assets; asset allocation; barriers; contraintes réglementaires; diversification; diversification; financement privé; infrastructure; infrastructure; listed securities; obstacle; pensions; pensions; private finance; regulatory constraints; rendement; returns; risk; risque; titres cotés en bourse;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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