Korea’s Public Officials Benefit Association (Poba) plans to seek infrastructure opportunities in the US after Joe Biden is announced officially as the country's president, as part of the pension fund’s goal to allocate more into the asset class.
“Currently we have around 9% [of the portfolio in infrastructure investments]. I think we can increase it to 10% or 11% [next year],” Jang Dong-Hun, chief investment officer of the W14.3 trillion ($12.28 billion) pension fund, told AsianInvestor. Such investments provide “resilience, safety, and regular cashflows” to the portfolio, he added.
Poba's infrastructure portfolio contains more exposure to Europe and Australia assets than the US. Jang said the fund is interested to diversify more into the US as long as there are good investment opportunities.
As investment sentiment improves, more infrastructure projects will likely emerge under Biden’s administration as he seeks to boost the domestic economy, Jang added.
The pension fund plans to increase its US infrastructure asset exposure through private equity funds and co-investments.
It is also selective about the potential opportunities. The pension fund prefers social infrastructure or public-private partnership (PPP) projects, such as waste disposal systems that help to improve people's livelihoods, Jang said.
He added that Poba had not invested in US infrastructure in the past because most of the opportunities were in the energy sector, which would expose investors to market cycles.
Once the dust settles following the transition of the Trump administration to Biden, the US investment climate should improve, predicted Jang. In such an environment, general partners (GPs) are more likely to roll out products with US infrastructure as the underlying assets. Poba will consider these indirect vehicles because it does not make direct investments in overseas infrastructure.
The pension fund could partner with other assets owners to co-invest in US infrastructure, something that it has done before to gain exposure to the US real estate market. For instance, it agreed with California State Teachers’ Retirement System (Calstrs) on January 16 to set up a $312.5 million joint venture (JV) to invest into US multifamily residential real estate.
In 2018, Poba launched two $400 million joint ventures (JV) with Calstrs and Teacher Retirement System of Texas, respectively, to invest into US real estate debt. Poba committed $200 million to each JV. In May the following year, it doubled its investment with Calstrs.
Poba's US infrastructure plan followed Biden's pledge that his government will make far-reaching investments in infrastructure, spanning bridges, roads, green spaces, water systems, electricity grids and universal broadband for sustainable growth.
The Biden administration’s focus on infrastructure spending and initiatives related to climate change and clean energy could create new opportunities for investors, including in the private markets space, Mona Mahajan, US investment strategist at Allianz Global Investors, said in a note this month.
Both Biden and Trump have talked about investing in traditional infrastructure – such as the rebuilding of roads, bridges and airports – as well as technology infrastructure like 5G and artificial intelligence. While the Biden team proposed a $1.3 trillion infrastructure package it will likely require the approval of a divided Congress, and may ultimately be in the $750 billion range. It could nonetheless stimulate opportunities in the private markets space to help finance these critical projects, Mahajan said.
Such capital is badly needed. The US will underinvest in its domestic infrastructure by over $2 trillion between 2016 and 2025, according to a report published in January by the American Society of Civil Engineers, admittedly published before Biden's election win. Moreover, the country spends 2.5% of GDP on the sector now, down from 4.2% in the 1930s, the ASCE added.
Other asset owners in Asia Pacific have indicated their eagerness to invest into US infrastructure, such as Australia's LGIA Super. Troy Rieck, CIO of the Brisbane-based retirement fund, has said that when it comes to the asset class, "the 800-pound gorilla is US infrastructure; that’s the one we’re all waiting for".
“America needs infrastructure spending, the world likes the rule of law, and they want to generate a suitable return without taking on excessive risk,” he told AsianInvestor in April.
What's more, infrastructure investments have also been proposed as a panacea to economic ills caused by Covid-19 pandemic. The International Monetary Fund has recommended that governments invest in infrastructure spending.
Andries Hoekema, global head of insurance at HSBC Global Asset Management, told AsianInvestor earlier this month that Asian insurers, in particular, have been keen to invest in infrastructure debt and private debt strategies since the start of the Covid-19 crisis.
Concerning the outlook of the sector, Jim Lydotes, portfolio manager for global infrastructure income strategy at BNY Mellon, said in October that he believed “the asset class is poised to recover along with broader global equities” as the global economy returns to normal in 2021.