Infrastructure spurs growth in real asset mandates

Data from Financial Times service MandateWire showed infrastructure to be the most popular asset among the schemes it had spoken to, receiving £8.3bn of inflows in the quarter, compared with £154m in Q2. But experts have pointed to a lack of investment opportunities in the UK.

Government bonds were just behind real assets with inflows of £4.9bn, though it should be added that these statistics can be affected by large allocations made by single investors.

Fixed income was the most popular asset class among private and public schemes in the UK (see graph). Like their European counterparts, real assets made up the majority of alternative asset allocation.

Mandates awarded by UK schemes, and a breakdown of alternative investments

Property accounted for 50 per cent of all the awarded alternative asset mandates, including reweighted assets. Infrastructure received the second highest inflows accounting for 17 per cent of the alternatives allocations.

Conrad Holmboe, vice-president of investment consulting at Redington, said there had been a lot of appetite for infrastructure and real estate debt over the past six months.

“There has been a pipeline of discussions and a lot of education, and it got to the point where schemes were comfortable with the asset class and decisions are finally being made,” he said.

Lack of investment opportunities and inability to access the asset class have prevented schemes from making allocations. “In the UK, with the exception of the Pensions Infrastructure Platform, access is through third-party managers and those managers have only really come to market in the last year,” said Holmboe.

MandateWire data showed many schemes were considering allocations to infrastructure. David Cooper, executive director of debt investments at infrastructure specialist IFM Investors, said fragmentation of the UK pension market has led to delays.

“The appetite and interest for infrastructure debt can vary significantly depending on whether [schemes] are seeing this as an alternative to fixed income… or if they are saying it is an alternative asset class,” he said.

The data show local authority to be particularly keen on property and infrastructure. MandateWire’s Q3 Deal Flow report stated: “Of the 43 LGPSs interviewed over the quarter, 13 were discussing property. All but one of these focused exclusively on UK property.”

“Infrastructure continues to be seen as something of a holy grail investment for many funds,” the report continued.