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An introduction to infrastructure investments


Infrastructure investments are gaining increasing attention as necessary investments for retirement funds in South Africa. Investing in infrastructure projects presents funds with the opportunity to achieve long-term suitable returns for members, while at the same time contributing towards much-needed economic and socioeconomic outcomes.

What is infrastructure investing?

Investment in infrastructure – often referred to as an alternative asset class – is receiving increased attention and is gaining importance. According to the Chartered Financial Analyst (CFA) Society, “infrastructure is generally defined as the long-lived, large-scale public systems, structures, and facilities that provide essential services to society and the economy.” The Principles for Responsible Investment (PRI) states that: “Infrastructure forms the backbone of every economy, enabling economic and social development.”

Opportunities in infrastructure can be diverse and can enable investment in projects that ensure the provision of essential goods and services, thereby adding to the quality of communities’ lives.

From a portfolio-construction perspective, infrastructure investments offer portfolio diversification due to their low correlation with more traditional asset classes – such as listed equity – and can enhance yields, while also providing inflation protection. Furthermore, these assets can also be defensive during economic downturns.

Given infrastructure’s long-term nature, investing in these assets can be appealing to retirement funds, particularly in times of rising interest rates and inflation. But the merit of infrastructure investment also extends beyond financial gain; not only does it provide an opportunity to invest in something that has a different risk-return profile to more traditional asset classes, but it also affords the opportunity to invest in and stimulate the country’s socioeconomic growth and development.

Can retirement funds invest in infrastructure?

Although there is no specific allocation to infrastructure investments as per Regulation 28 of the Pension Funds Act,retirement funds may have exposure to these types of
investments through different asset classes, such as unlisted or listed debt or private equity. Currently, Regulation 28 allows retirement funds to allocate 10% of their investment portfolio to private equity investments, for example.

On 26 February National Treasury announced draft amendments to Regulation 28 of the Pension Funds Act to encourage investment in infrastructure. The review of Regulation 28 is in response to “a number of calls for increased investment in infrastructure given the current low economic growth climate”. The amendments seek to make it easier for retirement funds to invest in infrastructure. Infrastructure is not currently listed as a separate asset class under Regulation 28. The review of the regulation will allow for infrastructure investments to be more clearly defined under existing asset classes, such as equites, debt instruments and property. The amendments further propose that overall investment in infrastructure across all asset categories may not exceed 45% in respect of domestic exposure, with an additional limit of 10% in respect of Africa, and an aggregate limit for infrastructure investment*.

Comparative to other international emerging market peers, infrastructure spending in South Africa is too low relative to what is considered adequate for a developing economy. The level of gross fixed capital formation (GFCF) as a percentage of gross domestic product (GDP) reflects the extent of infrastructure spending in an economy. The most recent statistics show that GFCF as a percentage of GDP in South Africa was 18% in 2019. This is considered too low for a developing economy, where the norm should be approximately 30% to 35% of GDP, according to several studies. This emphasizes the importance of South Africa investing in more infrastructure projects locally.

Types of infrastructure investments

Globally, there are different ways to access infrastructure investments, examples being through direct investment, publicly listed funds, private infrastructure funds or private infrastructure fund of funds. The means of investment will be dependent on the investor’s objectives and liquidity requirements.

There can be a broad range of infrastructure investment opportunities across different sectors available to investors. Each opportunity should be assessed on its own merits, relative to the suitability for the investor, such as risk profile, investment time horizon and investment return objectives. Examples of infrastructure projects can include social projects, such as the construction of schools and hospitals; transportation projects, such as the building, construction or development of roads, railways and airports; communication projects, such as investing in wireless communication towers; or energy focused projects, such as renewable energy investments.

Characteristics of infrastructure investments

  • Investment horizon: Infrastructure investments are typically long term in nature.
  • Less liquidity: A large portion of these assets are unlisted which, among other factors, can make them less liquid.
  • Search for yield: The current search for an enhanced yield in a low interest rate environment has fueled the demand for investments of this nature. Added to this, the lower interest rate
    environment can be positive for investments of this nature, as it results in lower funding costs.
  • Stable returns: Infrastructure investments are less tied to economic cycles, therefore providing more stable returns.
  • Portfolio diversification: The performance of the underlying assets in infrastructure investments is uncorrelated to more traditional asset classes, such as listed equities.

*Treasury has invited public comment on the amendments to Regulation 28 until 29 March 2021. You can access the Government Gazette where the draft amendments were published via this link: 


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