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.
Joël Hübscher is an investment analyst in the Private Markets team at PUBLICA.
How does PUBLICA choose the funds?
In each case, we conduct a public tender using an international platform. Asset managers can offer their products to us if they believe they meet our requirements. We operate a multi-stage selection process and carry out due diligence on site at potential funds, where we audit areas such as the strategy, company, team, processes and performance.
Is a fund’s adherence to aspects of responsible investment a criterion in the selection process?
Sustainability is an important criterion. Needless to say, we’re looking for funds that don’t invest in coal production or controversial weapons: we’ve excluded both entirely from our portfolio. We also look to see how sustainability is embedded in the organisation and if, for instance, somebody from the ESG team is on the investment committee. We have high expectations in terms of transparency, and it’s also important that the fund can supply us with sustainability metrics.
Which funds has PUBLICA already invested in?
There were two at the end of 2023. One is a newly launched fund that aims to contribute to the 1.5°C target under the Paris Agreement, and has already made its first investment in a solar farm in the US. The other is somewhat larger and has completed a number of investments in various sectors.
How much has PUBLICA invested?
The plan is to invest CHF 600 million in funds and a further CHF 600 million in direct investments. To date, CHF 500 million has been committed to investments in funds.
What’s the next investment?
The funds are looking for other projects to invest in, and will of course comply with our responsible investment criteria. There are three megatrends where we expect to see the largest number of investment opportunities going forward: the digital transformation, decarbonisation and demographic change.
What does the expansion mean for you?
Infrastructure is an attractive sector. We’ve been supplying debt capital for a number of years now, so we know the market. I think the infrastructure market will grow strongly in the years and decades to come, so I believe it’s good for us to have a stake in that.
