GLOBAL - The growth of pension funds' interest in infrastructure has been driven by the large pipeline of opportunities, the maturity and size of the pension fund market and pension fund regulations, according to a report from the OECD.
In 'Pension fund investment in infrastructure', the OECD analysed the main reasons why pension funds worldwide have increased their allocation to the asset class in recent years.
The first factor, it said, has been the availability of investment opportunities for private finance capital and, therefore, for pension funds.
It said: "Following the wave of privatisation that has swept mainly the industrialised countries of the world over the last 25 years or so, the involvement of the private sector in the provision and operation of infrastructure has rapidly increased."
This has led governments to propose new forms of cooperation between the public and private sector in infrastructure, such as Public Private Partnerships (PPP).
The second factor, according to the report, has been the maturity and size of the pension fund market.
However, the OECD focused on several countries, such as Australia, where the growth of the investment industry has been a consequence of the introduction of the compulsory Superannuation system in 1992, and some European states - including Greece, Italy, Spain and Turkey - where the state-run pay-as-you-go public pension tier has limited the growth of private pensions and therefore the potential for investments in infrastructure.
The OECD report also found that regulations at country level have evolved in recent years following different public policy decisions to protect people's retirement savings but also to require a high domestic weighting for investment or to fund government debt.
In particular, local investment rules have traditionally favoured highly rated and liquid debt instruments.
The report concludes that infrastructure investments involve a steep learning curve given the unique nature of each investment and require a long lead time to complete due diligence, educate plan sponsors and set up the appropriate structure for investment and risk management.
Last month, a new survey published by Preqin showed that institutional investors were more eager to invest in infrastructure this year than in 2010.
According to the survey, almost three-quarters of respondents are seeking to make further investments in the asset class within the next 12 months.