EDHEC responds to the UK Department of Work and Pensions’ Call for Evidence on DB Pensions – Infrastructure Investing: Yes, but with the Right Data

The heavy losses recognised in Thames Water are not an isolated case and raise the issue of proper risk control in this investment class

In its response to the Call for Evidence from the Department of Work and Pensions on the usefulness for Defined Benefit (DB) pensions of investment in productive finance, including infrastructure, the EDHEC Infrastructure & Private Assets Research Institute underlines the advantages of this asset class for long-term investors, particularly pension funds, but draws the Department’s attention to the risks of this category of assets, which it considers to be poorly captured by investors.

On the benefit side, through their superior duration, risk-adjusted returns, stability of cash flows and good level of decorrelation with public assets, unlisted infrastructure investments present indisputable advantages, whether in improving the performance of DB pension funds or improving their liability hedging. On the latter point, infrastructure debt can be a good replacement asset in the context of deleveraging Liability-Driven Investing (LDI) strategies.

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