IN A NUTSHELL Retirement funds can invest in infrastructure in different ways — as lenders, as shareholders, or through a combination of both. They usually spread these investments across different infrastructure assets to manage risk.
Your retirement fund’s mandate may include investing in infrastructure. But how does this work in practice? Here are four key infrastructure investing concepts to understand:
The main investment instruments (ways to invest in infrastructure) are:
Both can be:
- Listed (public; on a stock exchange, like a government or a green bond or a energy company) or unlisted (private)
- Invested in directly (in a toll road project) or indirectly, by investing in an infrastructure investment fund, for example
The interactive infographics below illustrate the different ways retirement funds can invest in infrastructure and help “build” better services.
Very few pension funds invest directly in infrastructure projects. This is because infrastructure can be complex and risky — with construction, operational, market and even political risks involved — and most funds don’t have the in-house expertise to manage this themselves.
Instead, most pension funds invest indirectly, usually through specialist managers or infrastructure funds that invest in private (unlisted) infrastructure debt or equity on their behalf.
Let’s use the investment by the Government Employees Pension Fund (GEPF) in the Roggeveld Wind Farm near Sutherland as an example of infrastructure investing.
GEPF
→ mandates their asset manager, the Public Investment Corporation (PIC)
→ PIC commits GEPF capital to infrastructure funds managed by African Infrastructure Investment Managers (AIIM)
→ AIIM invests equity (buys shares) in the Roggeveld Wind Farm.
So, the GEPF’s exposure to the wind farm is:
Equity (shares)
Unlisted
Indirect
The GEPF does not directly own part of the wind farm. It is invested via its funds managed by the PIC into AIIM’s unlisted infrastructure equity fund, which holds the stake. Its ownership in the wind farm is therefore indirect.
Further learning
To learn more about infrastructure investments, check out the Infrastructure Investments Information Hub. or if you would like more in-depth knowledge, Atleha-edu and the ASISA Academy offer workshops for South African trustees and members of retirement funds on Investment Fundamentals and other themes.
Sources
Engineering News: Red Rocket’s Roggeveld wind farm achieves commercial operations
EBNet: Trustee Tutor 12
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