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Transparency, benchmarks needed to pique pension interest in infrastructure

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Infrastructure markets need to be more transparent, with greater emphasis placed on the development of sector benchmarks, according to the European Association of Paritarian Institutions (AEIP).

Setting out its views on infrastructure, the association said that while pension funds were long-term investors – and therefore well-suited to invest in the asset class – they first and foremost needed to abide by their fiduciary duties to members.

“The reality is that infrastructure represents a valuable asset class and for sure a viable option for long-term investors, but these latter face several hurdles to access it,” the AEIP’s paper noted.

It said the lack of comparable, long-term data was one of the hurdles facing investors and that the absence of infrastructure benchmarks made it difficult to compare the performance of the asset class.

It also identified an organisation’s scale as problematic to taking full advantage of the asset class.

“Direct investments, those that yield the most interesting returns, are the most difficult to pursue, as their governance and monitoring require skilled individuals and a strict discipline regulating possible conflicts of interests,” it said.

“National regulation does not always simplify direct investments, and pension regulators in some cases limit the use of the asset class in a direct or indirect way.”

The association called on governments to play their part in making infrastructure accessible.

“Often the lack of infrastructure investments is not due to a lack of projects but not finding the right match with investors,” the AEIP added. “Some form of standardisation might be investigated.”

The organisation said policymakers should not expect pension funds to solve the infrastructure shortfall alone but accepted that the industry “should and could” do more, noting that both Australia and Canada enjoyed a regulatory framework that fostered infrastructure investment.

The UK has also recently reformed its tax system, exempting private placements from withholding tax – which could lead to a growth in infrastructure debt mandates.

For its part, the European Commission has sought to boost the profile of infrastructure projects on the Continent, asking member states to publish pipelines as it pushes ahead with its €300bn investment package.

The Commission pledged in March that it would increase transparency in the infrastructure loan market, considering the development of a centralised database of infrastructure credit data.

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