December 28, 2015
Interviewed by: David Snow
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Why Some LPs Look to Infra for Long-term Holds

For institutional investors like pension funds that are looking for long-term holds on a large amount of capital, infrastructure is a great place to invest, say two experts representing Aviva Investors and Alberta Investment Management Corporation.

For institutional investors like pension funds that are looking for long-term holds on a large amount of capital, infrastructure is a great place to invest, say two experts representing Aviva Investors and Alberta Investment Management Corporation.

Why Some LPs Look to Infra for Long-term Holds
With David Dahan of Aviva Investors and Alison Schneider of AIMCo

David Snow, Privcap: Today, we’re joined by Alison Schneider of AIMCo and David Dahan of Aviva Investors. Welcome to Privcap. Thank you for being here.

David Dahan, Aviva: Hi, thank you.

Alison Schneider, AIMCo: Thank you.

Snow: Let’s talk about the importance of infrastructure in institutional portfolios these days. It has grown and grown as a slice of the pie in the overall asset mix. Why is that, Alison? At AIMCo, what is the importance of infrastructure in the overall AIMCo portfolio? Why is it such an attractive asset class to get into?

Schneider: AIMCo is a crown corporation. We invest on behalf of public pension plans and government funds for the Province of Alberta. And we’re a long-term investor, so that aligns with the time horizon for infrastructure. Quite frankly, the markets out there today are pretty volatile and it’s harder and harder to get returns in the traditional assets classes. So, we’re looking very proactively to up our overall allocation to infrastructure because we think that’s where the future lies. We’re pretty committed to that.

Snow: Of course, because of your size and the resources you have, you can put a lot of capital to work directly.

Schneider: Exactly, yeah. Thank you for that. Yeah. The scope is there. So, we have a lot of money we can put in for a fairly long period of time and we certainly will co-invest as well with other institutional investors. Overall, it aligns with what we think is the right place to be. Having said that, about a year ago, we signed on to something called the Pocantico statement with Ontario Teachers and CalPERS and some other funds.

It was a letter to Secretary General Ban Ki-moon at the UN, basically saying we would like to invest in more infrastructure opportunities. A lot of opportunities are in emerging markets these days, which is a bit too risky for us. So, we were asking for international development banks to come in, to be first at the post, to actually get these infrastructure opportunities up and running. Then, five years down the road or so, we would be interested in—

Snow: Sure, de-risk them a little bit for groups like yours. Yeah.

Schneider: De-risk them a little bit, yeah. All that to say that we’re very interested and we’re on the hunt, but it’s getting more competitive now. It’s starting to become more red ocean than it used to be, so you’ve got to be more inventive.

Snow: David, talk about the growth of infrastructure as a target asset class. What role does it play in your overall portfolio?

Dahan: We represent Aviva Group significantly, but we have a few external clients as well. And the common feature when I look across infrastructure, without a doubt, is starting from a fairly low base in terms of the allocation. But, it is definitely increasing, and there’s a variety of reasons for that. Certainly, from an insurance-group perspective, there’s a really good match of long, stable, patient capital that we have to support the policyholders and the pensioners’ ultimate retirement that we look after. There’s a good fit in terms of infrastructure and the long-term aspects of that and the cash flow provision it can provide over a long, sustained period.

So, there’s a good match there from that perspective. Infrastructure offers a great diversifier relative back to Alison’s point around the market environment in the traditional assets. It’s a great diversifier and reasonably uncorrelated. Some assets are more correlated than others, but [they are] reasonably uncorrelated. It does represent an increasing part of the asset mix from an insurer’s perspective, but as well as some of the pension funds we’ve been working with to look after their assets.

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