Pension Fund Investment in Infrastructure

OECD Working Papers on Insurance and Private Pensions, No. 32

47 Pages Posted: 3 Feb 2014  

Georg Inderst

Inderst Advisory

Date Written: March 3, 2009

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.

Keywords: pension funds, infrastructure investment, asset allocation, listed securities, private finance, regulatory constraints, investment barriers

JEL Classification: G15, G18, G23, G28, J26

Suggested Citation

Inderst, Georg, Pension Fund Investment in Infrastructure (March 3, 2009). OECD Working Papers on Insurance and Private Pensions, No. 32. Available at SSRN: https://ssrn.com/abstract=2389704 or http://dx.doi.org/10.2139/ssrn.2389704

Georg Inderst (Contact Author)

Inderst Advisory ( email )

4 Evangelist Road
GB London, NW5 1UB
United Kingdom

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