Pension Plans Launch $20 Billion
Infrastructure Fund
By Greg Roumeliotis, Reuters
April 26, 2012
World
One of Canada's
largest pension plans teamed up on Thursday with
Japan's pension funds and some of its major
conglomerates to help raise $20 billion for the
world's largest infrastructure fund to invest in
assets such as roads and airports.
While a handful of the world's biggest pension
funds have the capacity to lead their own
investments in infrastructure assets, the
initiative represents an unprecedented effort to
cut out asset managers as middle men in
infrastructure investment.
Ontario Municipal Employees Retirement System
(OMERS) said on Thursday it had committed a total
of $7.5 billion together with Japan's Pension Fund
Association and a consortium led by Mitsubishi
Corporation, Japan's largest trading house, toward
the new fund.
Infrastructure funds have traditionally been
sponsored by investment banks, private equity
firms and independent asset managers. If
successful, the new fund could have major
implications for the infrastructure asset
management industry.
Much of the world's infrastructure is struggling
to meet the needs of a growing and aging
population. The Organization for Economic
Co-operation and Development estimates $53
trillion of investment, equivalent to an annual
2.5 percent of global gross domestic product, will
be needed to meet demand over the coming decades.
Dubbed Global Strategic Investment Alliance
(GSIA), the new fund will invest in assets such as
railways, ports and gas pipelines that have a
value of over $2 billion each and are located
primarily in North America and Europe.
The initiative is led by OMERS, which administers
the pensions of 420,000 public sector employees in
Ontario such as police officers, fire fighters and
teachers, and has over $55.1 billion in net assets
under management. Its infrastructure arm,
Borealis, is a serial acquirer of infrastructure
assets and its portfolio includes the Detroit
River Rail Tunnel linking Michigan to Ontario and
a high-speed rail line in Britain.
"Based upon the feedback in the market, we
anticipate welcoming a number of other
forward-thinking pension plans and other long-term
institutional investors from around the world into
the GSIA over the next 12 to 18 months," said
Jacques Demers, strategic investments chief
executive for OMERS, said in a statement.
OMERS has committed $5 billion to the fund,
Japan's Pension Fund Association has committed
$1.25 billion, and Mitsubishi's consortium, which
includes Mizuho Corporate Bank Ltd and JapanBank
for International Cooperation, has also committed
$1.25 billion. GSIA's fundraising target is $20
billion.
Infrastructure has emerged as a separate asset
class to private equity in the last decade,
offering lower returns but also stable cash flows
that are hedged against inflation and are
underpinned by physical assets such as roads and
pipelines.
Infrastructure typically has a longer investment
horizon than private equity, which tends to flip
assets within three to seven years, and so it
appeals to pension funds looking to match their
long-term liabilities with long-term assets.
But the developing world sees little of such
infrastructure fund investment. Political risk and
patchy regulation often drive pension funds to
skip on emerging markets, despite their attractive
demographics, for the safety of infrastructure
assets in Europe and the United States, which have
a track record. GSIA will be no different.
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