Infrastructure investing activity remains low among the largest pension funds and public pension reserve funds worldwide, despite increased allocations to other alternative investments, a report from the Organization for Economic Co-operation and Development showed.
The OECD surveyed or reviewed 104 plans with $10.4 trillion in assets combined.
Increased alternatives allocations have been a “salient trend” over the past four years, particularly among the 10 largest pension funds surveyed, said Joel Paula, a policy analyst on the OECD's long-term investment project and co-author of the report.
Average allocations to alternatives increased to 19.5% from 17.6% between 2010 and 2013 among the 10 largest pension funds surveyed, while infrastructure allocations were more stable. Of the 71 funds that responded to the OECD survey, unlisted equity and debt infrastructure investments totaled $80 billion, or 1% of total respondent assets, at the end of 2013, up slightly from $72.1 billion, or 0.9% of total respondent assets, at the end of 2012.
Mr. Paula and Raffaele Della Croce, lead manager on the OECD's long-term investment project and co-author of the report, attributed the slow uptake to unstable regulatory frameworks and a lack of bankable projects.
“Pressure is on the policy side to provide the right conditions for investors to accept infrastructure,” Mr. Della Croce said in a telephone interview.
Although infrastructure investment activity remains low, plan executives are expressing interest in the asset category.
Large pension funds like the €20 billion ($24.5 billion) Etablissement de Retraite Additionnelle de la Fonction Publique, Paris, and $28 billion Afore Banamex, Mexico City, plan to establish new target allocations to infrastructure, according to the report.
Aside from infrastructure, alternatives discussions have also focused on real estate and private equity, Mr. Paula said. He added that large pension funds are also talking about bringing management in-house because of the reduced fees and growing interest in unlisted investments.
“(There has been) a conscious move away from listed assets such as equities to a lower volatility (portfolio) of unlisted assets,” Mr. Paula added.
As alternatives allocations increase, equity allocations are decreasing at some pension funds.
Among the 10 largest pension funds surveyed, average allocations to equities decreased to 39.3% at the end of 2013 from 42.4% at the end of 2010. Fixed-income allocations rose to 41.2% from 40% during the same period.
The opposite was true for public pension reserve funds, which increased their equity allocations to an average 25.8% in 2013 from 24.8% in 2010. Fixed-income allocations were reduced to 59.5% from 64.7% during the same period and alternatives allocations rose to 14.7%, up from 10.5% in 2010.
The full report is available on the OECD's website.
