Big investors are hungry for more infrastructure investment opportunities

• A massive infrastructure plan could fuel growth in the asset class.
• Pension funds have contributed to the 10-year rise in invested infrastructure assets.
• BlackRock says pension investments in infrastructure are “happening anyway,” package or not.
• See more stories on Insider’s business page.

President Biden’s massive infrastructure spending plan could widen up even more opportunities for pension funds — who are already pumping money into an asset class they’ve long seen as an attractive area of investment.

Since June, Biden and a group of senators have been working on legislation that could infuse $1.2 trillion — including roughly $600 billion of new spending — into the country’s aging physical infrastructure, from roads and bridges to water and sewer systems and broadband internet, according to a USA Today report.

BlackRock, the world’s largest money manager with more than $9 trillion in assets, sees the prospect of heightened government spending in the infrastructure sector as a potential draw for pension funds interested in the segment.

“Anything that increases deployment is good for the asset class and will further foster and accelerate the growth of the asset class,” Alan Synnott, global head of research and product strategy for BlackRock Real Assets, said in an interview with Insider.

BlackRock’s real assets business includes $36 billion in infrastructure assets, managed on behalf of large investors like pensions and insurers, according to Synnott.

While institutional investors are eager to invest in infrastructure, opportunities to deploy the capital that money managers have already attracted can be challenging, Insider reported in 2019.

BlackRock’s Synnott notes that these concerns have been somewhat alleviated due to policy efforts in the US to invest in infrastructure, along with the European Union’s Green Deal and the UK government’s Build Back Better plan.

“Multiple policymakers globally are pursuing efforts that ultimately are designed to grow deal flow,” he said. “And the more you grow deal flow, the faster our clients can allocate to the space.”

In addition to private equity infrastructure funds, pensions can put money into the asset class through shorter-term infrastructure debt funds, which finance projects or related infrastructure assets, or by investing in listed infrastructure companies, which own and operate physical infrastructure assets, Synnott explained.

“Direct government spending on infrastructure is an important part of financing the maintenance of existing infrastructure and of developing new infrastructure,” Synnott said. “In addition, policies, tools and regulations can help catalyze opportunities for the private sector to participate.”

Many pensions view infrastructure funds as an inflation hedge and an alternative investment that can diversify their portfolios as bond yields sag.

But, Synnott added, “the growth of infrastructure investment by pensions in the US is happening anyway.”

Infrastructure as an asset class “ticks a lot of the boxes” that pensions are trying to achieve in their investment portfolios, Synnott said, from higher returns to risk objectives and portfolio diversification. Those factors explain the “10-year rise in infrastructure as an asset class” among institutional investors like pension funds, he added.

It also fulfills their desire for more sustainable investments, given the number of green projects on the horizon, Synnott said.

Green energy, digital tech infrastructure is an emerging opportunity

The Los Angeles County Employees Retirement Association, a $69.6 billion pension fund and longtime investor in infrastructure, has poured around $2 billion into the asset class.

Jonathan Grabel, the chief investment officer of the fund, told Insider that the plan aims to grow this allocation to around $3.5 billion over time, though he declined to specify a deadline for hitting that target.

Looking ahead, investments in energy transition projects — those shifting the energy sector’s reliance toward wind, solar, and other renewable sources — are of interest for the pension fund, he said.

“Over the last year, we’ve made some digital infrastructure investments,” and energy transition opportunities are increasing, Grabel said. He added that energy transition “may play a larger role in current and future investments” for the pension.

Digital infrastructure supports crucial information technology, like the internet’s backbone, and access to broadband, cellular, and cloud computing networks.

Last month, Lacera committed $415 million across two funds managed by Axium Infrastructure, a money manager with offices in New York, Montreal, and Toronto.

The funds invest in energy, transportation, and social infrastructure in Canada and the US, according to Lacera board meeting documents.