UNITED STATES - More US pension fund investment capital is heading for infrastructure, according to a research report issued by RREEF.
Asieh Mansour, chief economist and strategist for RREEF's Alternative Investment division, said one of the newest players to create an infrastructure program is the California Public Employees Retirement System as it is expected to discuss infrastructure at its board meeting later this month.
An initial allocation to the property type will be made at CalPERS' meeting but the total amount of investment in infrastructure to be made by pension funds over the next 12 months is projected by RREEFF to be as much as $1bn (€773m).
"The pension fund capital will continue to be invested in infrastructure in the near future. Many of these investors are attracted by the solid long-term returns that the property type can provide," said Mansour.
Most pension funds are separating infrastructure into three assets classes: real estate, private equity or treating it as a new asset class in its own right; but RREEF has found most pension still see infrastructure as part of their real estate strategy.
RREEF projects mature infrastructure assets will deliver 10-14% gross leveraged IRRs over a10-year holding period but the real estate house suggests the favored investment structure for infrastructure to place capital in commingled funds.
"Up to now, the vast majority of the capital being invested has been through commingled funds," said Mansour.
"Investing in this property type has only been happening for the past couple of years. When the investors get a little more comfortable with the property type, you might see more interest in separate account structures."