Infrastructure a 'golden opportunity' for pension funds – Aberdeen
EUROPE - Infrastructure investments represent a golden opportunity for pension schemes looking for a liquidity premium, according to Aberdeen Asset Management.
Speaking at the sixth European Pension Fund congress in Frankfurt, Mike Turner, head of global strategy and asset allocation at Aberdeen, said pension funds should commit to asset classes that were by nature "embryonated".
"Since the collapse of Lehman Brothers back in 2008, the financial industry has focused on liquidity, but liquidity makes people focus on the short term," he said.
"For the pension schemes that can take a more longer-term approach when it comes to liquidity premium, infrastructure offers a large pipeline of opportunities, with yields going up to 5-6%."
Turner also highlighted that governments often backed infrastructure projects, adding that the asset class could also be seen as part of the solution to the debt crisis.
"In the UK, the government, which remains cautious about the country's AAA credit rating, is currently talking about certain assumptions that can be made about unfunded public sector pension scheme liabilities," he said.
"So the question is, could they fund these liabilities by issuing debt that would not necessarily impact their credit rating and then transfer it to pension schemes?
"Ultimately, if they do so, this will mean the deficit is helped and private sector pension schemes could also get engaged."
However, infrastructure investments still represent a risk, according to Jac Kragt, chief risk officer at the €105bn Dutch pensions provider PGGM.
He said infrastructure investments had not always performed as they were expected to, adding: "As a pension fund, you always need to go out and make sure you receive your expected returns."
Kragt also argued that it was important to set up in-house teams with expertise in infrastructure, although he conceded that only the larger pension funds would be able to do this at the moment.