PUBLICA is now investing in private infrastructure equities. Why?
We’ve actually been investing in private infrastructure since 2016, by providing debt finance. In 2022, when we revised our strategic asset allocation, we decided to include shareholdings in infrastructure too, so it’s only the equity investments that are new. Private infrastructure has an attractive risk/return profile and adds extra diversification to our overall portfolio. It generates stable returns, is exposed to little in the way of value fluctuations, and offers a measure of protection against inflation. As a pension fund, we’re also in a position to hold illiquid investments and so capture the illiquidity premium.
What are the particular features of this asset class?
Private infrastructure means facilities that are essential to the functioning and development of an economy. They include electricity networks, wind farms, pipelines, roads, public buildings and airports. Because of its importance, infrastructure often benefits from monopolistic market structures, high entry barriers and a high degree of regulation. That translates into security and, for investors, the prospect of a stable return. Infrastructure is also less dependent on the economic cycle. The amount of capital required to maintain, modernise and expand the global infrastructure is huge. Infrastructure investments have grown strongly over recent years and are now an established asset class that meets institutional standards. As a result, they are classified as “traditional” rather than “alternative” investments for the purposes of OPO 2, the Ordinance on Occupational Old Age, Survivors’ and Invalidity Pension Provision. That enhances their standing.
What exactly does PUBLICA invest in?
We invest in a country’s core infrastructure: key facilities that have been operational for some time. We do this via funds that invest in infrastructure projects on behalf of multiple investors. At present, we are also looking into investing directly in foreign infrastructure projects. There too, we are focusing on infrastructure that works well, is low-risk, delivers high, stable dividends and has minimum dependency on the economic cycle. There may also be projects of interest to us in Switzerland, but private operators’ need for capital is lower here at home. We don’t invest in greenfield projects, which build everything from the ground up, because the risk is too high.