REAL ESTATE – Investment consulting firm Mercer is telling its pension fund clients that patience and due diligence are virtues when it comes to investing in infrastructure.
"Our advice to investors is be patient," said senior associate Shalin Bhagwan. "It’s important if you make an allocation to infrastructure that you invest in the right vehicle and that you go through a proper process of due diligence in terms of selecting that fund.
"So I think patience is a virtue when investing in infrastructure."
Speaking on an online forum recently, Bhagwan said: "Ultimately as consultants we look to the manager of the fund to make an assessment of the specific risks that they are taking on.
Clients needed to "make sure that the return they expect to generate and hence the price that they will pay for the asset fully reflects and compensates them for the risks that they are taking on".
That was not an area Mercer looks to specifically get involved in.
Bhagwan said: "Our focus as consultants is on trying to help clients to understand the strategic rationale for making an allocation to infrastructure and putting that in the context of their existing portfolio of investments."
There are some "pretty sophisticated investors operating in the infrastructure market and I think from a client perspective you need to make sure that you choose to invest in a vehicle and in a fund that you believe is run by high calibre people, people who have proven skills, a proven track record of operating in the infrastructure sector".
One of the challenges was to find a sufficient number of those vehicles, sufficient infrastructure teams who have a proven track record.
And the track record needed to relate not just to the financial structuring part of the "infrastructure equation" but also to managing the assets from an operational perspective.
"And the question is, do the people running the fund have the right skills to actually unlock that they claim they will unlock at various stages of the process?" he asked.
"Because ultimately infrastructure investment is a long-term investment and you are looking to make a return at every stage of the investment so the price that you pay has to be right the financial restructuring part of the equation.
"There needs to be proper due diligence around that and potentially in some cases these funds look to add a bit of return through exiting at the appropriate time to a secondary investor."
