Even as infrastructure wins a dedicated allocation from growing numbers of institutional investors around the globe, much about their approaches to the market segment remains idiosyncratic.
The ways asset owners opt to structure their infrastructure investments depends on myriad factors, including an organization's heritage, governance, investment objectives and approach to illiquid asset classes, said Ross Israel, head of global infrastructure for QIC Ltd., Brisbane, Australia.
Markus Hottenrott, London-based managing director and chief investment officer of infrastructure at Morgan Stanley Investment Management, agrees.
“I don't think there is one way in the way people invest in infrastructure,” Mr. Hottenrott said.
“If you poll 10 different investors ... out of 10, you will get seven different answers,” Mr. Hottenrott said. “It depends on how they want to access the asset class and their views on whether certain segments are expensive.”
All of these things can leave their approaches to infrastructure — whether the investment model they adopt is direct, indirect, commingled or co-investment driven — different even within a single country, let alone across regions like Europe or Latin America or Asia, Mr. Israel said.
By way of example, the New Zealand Superannuation Fund avoids private equity-style funds while Australia's Future Fund uses them.
The NZ$29.6 billion ($20.4 billion) New Zealand Super buys infrastructure on the assumption that the fund is “happy to hold assets forever,” which makes for a “fundamental misalignment” with investment vehicles that have to sell assets to earn their performance fees, said David Rae, the fund's Auckland-based head of investment analysis. The fund had a 4% allocation, about NZ$1.2 billion, to infrastructure as of March 31.
“Our preference is club deals,” either through a manager, such as H.R.L. Morrison & Co., in a “direct-ish” arrangement, where the manager doesn't have full discretion and NZ Super is involved in due diligence and the strategy of the mandate, or with other asset owners, such as NZ Super's purchase, with eight other parties, of the EastLink toll road in Melbourne, Australia, Mr. Rae said.
Wendy Norris, head of infrastructure and timberland with Australia's A$117.4 billion Future Fund, meanwhile, said her team employs a direct or “direct-ish” model when investing in its home market, but uses open-end or private equity-style funds overseas.
The Melbourne-based fund's A$8.3 billion infrastructure portfolio is divided into four parts: Australia, offshore core, offshore opportunistic and listed (mostly core) infrastructure.
Infrastructure is “very much a local investment,” where understanding the situation on the ground is crucial when investing in a toll road or a power plant, Ms. Norris said. With six or seven team members who all bring a background in direct infrastructure investing to the fund, Future Fund is equipped to make direct investments at home, or work closely with a couple of managers on separate account mandates where the fund retains discretion, she said.
Lacking similar familiarity with overseas markets, Future Fund taps fund vehicles for infrastructure investments outside of Australia.
And with no specific liabilities — only a mandate to maximize returns — private equity-style funds work well for the Future Fund, especially as its allocations have focused increasingly on less crowded opportunistic investments overseas, Ms. Norris said.
Grant Harrison, investment manager, private markets, with Cbus Superannuation, Melbourne, said the A$31 billion fund's “direction at the moment is toward co-investments, alongside our managers,” with further consideration now for how to best invest in greenfield opportunities.
Meanwhile, with core infrastructure still the main focus of its investments, Cbus has concentrated on open-end funds, Mr. Harrison said.