I attended on the 20th an NAPF conference in London on investments for Pension Funds. One of the topic touched upon was Infrastructure investing.

The theoretical value of these investments need not be listed again. Let’s just mention their capacity to offer inflation risk hedge. After all they are hard assets generating cash flows… Interestingly though, the years 2007 and 2008 saw record level of investments, creating their own local bubble through excessive valuations supported by even more excessive leverage. Those have reversed to acceptable levels since.

Risks linked to these investments have to be carefully analysed prior to investment.

Liquidity is not to be expected from this market and all participants were deploring the lack of secondary market structure. The “secure” cash flows on which the investment rational is based are always subject to political, tax and /or life style risks, especially in schemes linked to transports and energy. And the major draw issue remains the exit strategy and the difficulty to monetise progress or simply get out of the positions.

That was quite a surprise not to say a shock to hear one speaker mentioning Green-tech investing as a hedge against the risks global warming is creating to pension funds. I would never have believed that politically correctness would reach that far, to the point of trying to pollute the way pension funds should look at their investment strategies. There are no limits to the global warming inquisition forces and this surely is the sign a bubble is forming somewhere.

More seriously, it is not easy to draw a line between what is purely infrastructure investment from private equity. It seems to me that when risk starts to shift to technology and execution risks, we enter the world of private equity and these investments definitely belong to a different bucket. It is not making any favour to that market so desperately in need of private capital to attempt to bundle it with investments with very different risk/return profile.