European pension funds are lifting their exposure to infrastructure debt as they implement a strategy shift to diversify their fixed income allocations, according to Brett Himbury, chief executive of IFM Investors.
“We are receiving a couple of billion dollars a year from European pension funds seeking to invest in infrastructure debt,” he told IPE Real Assets, explaining that the steady inflow of European pension money began just over three years ago.
“We anticipated that this could happen and put together a global infrastructure debt about six years ago,” he said.
“In a low-yield environment, investors look to diversify their fixed income exposure.”
In Europe, the main type of retirement scheme was the defined benefits plan, Himbury said. This was different to Australia, where defined contribution schemes were the preferred option.
“As a result,” he said, “the European funds have huge allocations to fixed income and they are now looking to sub-allocate that exposure into other fixed-income assets.”
The shift was currently small, he added, but given the large pool of money that they managed collectively, it translated into a “very big” amount.
The inflows were being invested in “at or close to investment grade” infrastructure projects in Australia, the US and Europe. “We are aiming for mid-to-high single digit returns, but with lower risks.”
Himbury said IFM Investors had several infrastructure funds, including one for Australia and another for the United States, but none, as yet, for Europe.
European pension funds preferred mandates and they worked with IFM on specifying their risk, tenure and geographical preferences, he said.
“They are sophisticated institutional investors. They invest more than A$100m (€63.2m) at a time, so we collaborate with them and participate in bank syndicates.
“We have been able to deploy the inflows. One of the good things about having more money is that we’re able to take on bigger ticket sizes.
“We are moving to double our investment sizes from our present average of A$20-30m.
“These investments are syndicated with other banks and the like that have more capital to enable us to have a bigger capacity per deal yet still maintain a diversified portfolio.”
Infrastructure debt was the fastest-growing product, albeit, from a low base, offered by IFM, Himbury said. The global infrastructure manager now manages assets totalling A$120bn.
“The firm has been growing in the low 20% range each year for the past five years, and infrastructure debt has been ahead of that rate,” Himbury told IPE Real Assets. “We have A$7bn invested in infrastructure debt.”
Asked about IFM’s European clients, Himbury said: “We have 350 clients around the world and around 60 of them are in Europe and the UK. They are not all infrastructure debt investors; some invest in infrastructure equity.”
IFM Investors plans to open an office in Europe, almost certainly in Amsterdam, in the next three months.
Last week, IFM Investors and a consortium which included Singapore’s PSA International, bought Poland’s DCT Gdańsk, the largest container terminal in Poland, for PLN5bn (€1.16b). The asset will be held in the A$35bn IFM global infrastructure fund.
In total, IFM manages A$53.3bn in infrastructure on behalf of more than 320 institutional investors.
An earlier version of this story misquoted CEO Himbury in the second paragraph.