Pension Funds and Infrastructure Investment
November 13th, 2008

When Mayor Michael Bloomberg began discussing his plan to weather the deteriorating fiscal climate, he said he remained committed to important infrastructure projects.

“If you don’t pay for infrastructure, you pay for it many, many times down the road,” the mayor declared.

Nonetheless, one week later a plan for school construction was discretely released which slashed the number of schools to be built nearly in half.

But is there a way for the city to maintain a solid footing in the face of an economic storm and also continue to build infrastructure projects?

Comptroller William Thompson thinks there might be. At a Crain’s breakfast last month, he floated the idea of infrastructure as an investment for the city’s pension funds.

“Such an investment could help further diversify our portfolio and fulfill our fiduciary goals in terms of return on investment, while addressing the urgent need to repair and expand our roads, bridges, power plants, and schools,” he said.

Domestic infrastructure is an area of growth “that will continue to see demand,” he added.

The projects funded would likely not end up within the city, however.

Thompson said they would probably not invest in directly in individual projects. For example, the city’s pension funds invested $150 million in one infrastructure fund in April called the Emerald Infrastructure Development Fund, which would go towards projects across the Atlantic in Northern Ireland.

Indeed, the Reason Foundation, a libertarian think tank, advises against viewing this idea as a way to invest in your own infrastructure. “Infrastructure funds give pension funds a vehicle to maximize returns on investment, gain exposure to a diverse asset portfolio, and mitigate risk,” they argue. “Those [infrastructure] funds don’t care where a project is located, just that it’s solid project worth investing in.”

New York is not the only place looking at infrastructure as a good investment. Investment banks are preparing for a shift in funding for infrastructure projects due to constrained credit markets.

“Banks won’t be the only or most dominant source of financing out there. Banks will have less capital available for everything, including lending for infrastructure,” John Hastings, head of US infrastructure for RBC Capital Markets told, the Investment Dealers’ Digest. As such, they are trying to create relationships with institutional investors.

State Comptroller Thomas Dinapoli is paying attention to the move and others like it. “This is an evolving asset category, and we’re watching developments in this space of the market closely,” a spokesperson told Reuters.

By on November 13, 2008, 10:05 pm
In category: Economy,Public Finance | 1 Comment »

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