Infrastructure: a driver of investment returns

Infrastructure funds are playing an increasingly important role in pension fund portfolios. But what exactly do these investments involve? What are their key benefits, and which risks should investors consider? Joël Batista, Key Account Manager at FCT Services SA, provides insights into this asset class through six key questions and explains how infrastructure investing can be made accessible to pension funds of all sizes.

1. What is infrastructure investing?

Infrastructure investing involves financing or owning assets that are essential to the functioning of the economy, such as electricity networks, renewable energy facilities, roads, airports, data and telecommunications infrastructure, and water distribution networks. These assets provide essential services and typically generate relatively stable income streams over the long term.

2. When did infrastructure become a standalone asset class for Swiss pension funds?

Until recently, infrastructure investments were classified as alternative investments. On 1 October 2020, an amendment to the Swiss Ordinance on Occupational Old Age, Survivors' and Invalidity Pension Provision (BVV 2 / OPP 2) came into force, introducing a dedicated investment category for infrastructure assets.

Since then, Swiss pension funds have been permitted to allocate up to 10% of their portfolios to this asset class. This regulatory development reflects the growing importance of infrastructure investments in institutional portfolios and their ability to meet the long-term investment needs of pension funds.

3. What are the main risks associated with infrastructure investments?

As with any asset class, infrastructure investing involves certain risks. Unlisted infrastructure investments are generally less liquid than equities or bonds, meaning they cannot always be sold at short notice.

Given the international nature of many infrastructure projects, currency fluctuations can also affect investment performance where no currency hedging is in place.

Furthermore, certain assets may be exposed to regulatory or economic developments specific to their sector. Political stability in the countries where infrastructure assets are located is another important risk factor to consider.

4. What are the key benefits of infrastructure investing?

Infrastructure offers several characteristics that are particularly attractive to institutional investors.

It provides portfolio diversification, as its performance is often less correlated with traditional financial markets. Infrastructure assets also tend to generate stable income streams, which may be partially linked to inflation.

In addition, this asset class offers attractive long-term return potential while contributing to the financing of assets that are essential to the economy.

Long-term target returns for infrastructure investments typically range between 6% and 9%.

5. Which pension funds traditionally invested in this asset class?

Historically, infrastructure investments were primarily accessible to large pension funds and institutional investors with substantial financial resources.

High minimum investment requirements, the complexity of project selection and ongoing monitoring obligations often represented significant barriers to entry.

Today, the development of pooled investment solutions and specialised infrastructure funds has made this asset class increasingly accessible to smaller pension funds.

6. How does FCT make infrastructure investing accessible to its affiliated pension funds?

To broaden access to this asset class, FCT has developed an Infrastructure Pool with extensive currency hedging.

This investment solution combines three complementary infrastructure funds to provide diversified exposure to global infrastructure assets, while maintaining a minimum currency hedging ratio of 95% against the Swiss franc (CHF).

Accessible to affiliated pension funds regardless of their size, this approach aims to combine stability, long-term growth potential and effective risk management through the careful selection of leading investment managers.

Would you like to learn more?

FCT develops innovative and flexible occupational pension solutions tailored to the specific needs of each company.

Whether your objectives are to optimise your investment strategy, reduce costs or enhance the benefits offered to your pension plan members, our team is here to help you explore the solutions best suited to your needs.

Note: Translated into English using artificial intelligence (AI).