Belgium’s KBC Pension Fund plans to grow its real asset allocation to 15%, its director told delegates at IPE’s Real Assets & Infrastructure conference yesterday.

On a panel about implementing real assets, Edwin Meysmans, director at KBC Pension Fund, said the pension fund had been reviewing its strategic asset allocation and decided to increase its real asset allocation as part of this.

Just over 12% of its assets of some €1.5bn is allocated to real assets, he said.

“So we can go a little bit further,” he said.

The pension fund counts listed and unlisted real estate and infrastructure in its real asset allocation; the targeted allocation to infrastructure is 5%.

Meysmans said the pension fund did not invest directly into infrastructure because of the scheme’s small size; it therefore has to go through funds.

The pension fund will not look beyond Europe to implement the higher real asset allocation, according to Meysmans.

“We will stick to Europe,” he said. “That is big enough for us.”

He downplayed real assets’ inflation-hedging contribution and said real assets sat within KBC Pension Fund’s return portfolio for their return characteristics on top of traditional fixed income but also because they serve as a means of reducing volatility stemming from the pension fund’s equity investments.

“One thing we have learnt through our experience,” Meysmans added, “is that there is no such asset class as infrastructure.”

Meysmans said economic infrastructure assets such as toll roads or airports were held up with “the promise of a boring asset class giving you predictable inflation-linked cashflows”.

But he said experience showed otherwise when the financial crisis hit in 2008 and “toll roads were minus 20% and the airports were minus 15%”.

He spoke of the reputational and regulatory risk that can come with investing in certain infrastructure assets, noting that the sale of Brussels airport, which KBC Pension Fund is invested in via a fund investment, had the rug pulled out from under it as a result of the terrorist attack earlier this year.

“This is not a low-risk asset,” he said. “It was until the terrorist attack on 22 March.”

He said the airport is the last asset in the fund, and that the asset manager was in the process of selling it, with the price and buyer known, when the attack happened.

“You take out all the insurance you want, and you cover everything except for reputational risk,” he said. “Who wants to buy Brussels airport these days?”

Social infrastructure such as schools or prisons will give lower returns with more inflation-linkage, he said.

Co-panellist Anthony Barker, director of pensions at Santander UK, had earlier said the pension fund only thinks about there being three main types of investment – equity, debt and physical assets – with infrastructure being between a physical and an operating asset.

As the panellists discussed the fall in infrastructure asset prices, Meysmans said that, as part of its ALM study, KBC pension fund was assuming real returns of 2.5-3% from infrastructure (equity investment) for the next few years.

“That’s low,” he said. “It’s still a lot more than for government bonds, which we put at zero, but it’s none of these numbers of 7% and 8% or so – we don’t expect that.” 

Meysmans said discussions were ongoing in Belgium about collaboration between pension funds and insurance companies to invest in infrastructure but that there was little action yet.