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Pension Fund Investment in Social Infrastructure

Insights from the 2012 reform of the private finance initiative in the United Kingdom

Authors :
Frédéric Blanc-Brude

Research Director at EDHEC Risk Institute–Asia.

In this publication, we extend our response to the issues relating to pension fund investment in social infrastructure.

EDHEC Publication

EDHEC Publication

Social infrastructure investments have by design the characteristics that pension funds find attractive in a liability-driven investment context: long-term contracts with steady and predictable inflationlinked income, high operating margins and high risk-adjusted return. Social infrastructure also corresponds to the bulk of the assets procured under the PFI and a model that has successfully been exported to the rest of Europe, and beyond to Asia and the Americas.

Moreover, social infrastructure investment may address some of the shortcomings of the general infrastructure investment case, which we outlined in our original response. ‘Economic’ infrastructure in particular tends to be too lumpy and fragmented for investors to contemplate holding a representative basket of investable infrastructure assets. Thus there is no available passive infrastructure investment strategy that a pension fund can follow by holding a highly diversified portfolio. Actual investments are likely to include exposures to the class and to firm-specific risk.
Type :
EDHEC Publication
Dates :
Created on February 24, 2012
Further information :
For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]

Finance


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