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Institutional investment: Infrastructure funds on the rise

More supply means more funds. But where to put them?

Infrastructure funds are taking off as the new alternative investment for institutions. Traditionally the realm of Australian and Canadian pension funds, the asset class is now being looked at by European and US investors. Calpers (the California Public Employees Retirement System), the largest US pension fund, recently announced that it had approved a $1.5 billion pilot programme to invest in infrastructure globally. In November last year, Vältion Elakerahasto, the $12 billion Finnish state pension fund, said it would be adding more infrastructure funds to its portfolio. Probitas Partners, an alternative investments solutions provider, conducted a survey of institutional investors in 2007 to gauge interest in infrastructure funds. Of the 115 respondents, 50% said that their appetite for infrastructure investments would increase in the year ahead.

New focus

Danny Latham, portfolio manager for First State’s infrastructure funds, attributes the increasing global interest from pension funds to the focus on absolute return products, and the need for asset/liability matching. "Property has traditionally fulfilled this need but it is a cyclical market. A greater supply of infrastructure assets has encouraged firms to look at the asset class." This supply is being generated by governments that are coming under increasing funding pressure when trying to maintain and augment existing infrastructure, says Latham.

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