Institutional investors in Europe are taking initial steps toward direct infrastructure investments as fund fee structures have remained high and expectations for illiquidity premiums have declined.
After pioneering Canadian and Australian retirement plans paved the way, asset owners in the U.K., Denmark and Sweden are discovering that they, too, can achieve the size required to invest in direct infrastructure through pooling. As this requires not only capital scale but also skills, infrastructure and governance capability to acquire and manage these assets, investors find that collaborating to form larger vehicles can help them compete for deals with big investors and managers.
They've also been emboldened by efforts from some European regulators that have been consistently loosening regulations allowing for pension plans to invest in alternatives over the past few years.
In March, Swedish national pension funds AP1, AP3 and AP4 teamed up to launch Polhem Infra, an infrastructure company that invests in Swedish assets such as renewable power production, energy storage, energy distribution and digital infrastructure, with an initial allocation of 9 billion Swedish kronor ($941 million).
And PenSam, a 140 billion Danish kroner ($21 billion) multiemployer plan for elder care, technical service and education workers based in Farum, Denmark, acquired in December a 10% stake in AIP Management, an infrastructure investment unit owned by the €35.8 billion ($40.1 billion) PKA, Hellerup, Denmark, a fellow pension provider.
PenSam is committing 3 billion Danish kroner to direct infrastructure over the next three years through AIP.
"Partnering with the AIP organization enable us to pursue direct opportunities at a lower cost compared to an infrastructure fund," said Carsten Grohn, head of private capital and real assets at PenSam.
However, he added: "It is not all about costs. The partnership allows us to construct the right portfolio for PenSam and to advance our position seeking for alpha in each investment in a very competitive market."
"Our focus is on stable, long-duration, yielding investments that provide some inflation protection and attractive risk-adjusted returns," Mr. Grohn said.
AIP, with €2.5 billion in assets under management, targets infrastructure and energy assets across Europe and the U.S. on behalf of four Danish pension funds for nurses, medical secretaries, social counselors and pharmacologists, whose assets are run by PKA.