Home ListingMarch 3, 2014

Japan and Canada Join Hands for Infrastructure Project

<i>GPIF and OMERS have entered into a five-year, $2.7 billion infrastructure co-investment agreement.</i>

Reported by Featured Author

(March 3, 2014) — Japan’s Government Pension Investment Fund (GPIF) has agreed to a joint infrastructure venture with Development Bank of Japan (DBJ) and Ontario Municipal Employees Retirement System (OMERS).

Under the five-year co-investment agreement, the world’s largest pension fund with $1.3 trillion in assets, will invest up to $2.7 billion in infrastructure opportunities chosen through a “unit trust” with the DBJ. OMERS will source and propose potential investments to the trust.

According to GPIF’s press release, the unit trust will be managed by Nissay Asset Management Corporation (NAM) with Mercer Investments acting as an adviser.

GPIF is said to be particularly interested in opportunities in power generation, electricity transmission, gas pipeline, or railway, in developed countries in the hopes of generating “long-term and stable revenue from usage fees.”

“Investors with long-term horizons can benefit from stable income gains similar to fixed income in terms of cash flow profile, higher yields than those from typical fixed income [assets], and being less affected by public market volatility,” GPIF said in a statement.

Possible liquidity premiums and diversification benefits were also cited as reasons for entering into the co-investment.

Such a venture in infrastructure is in sync with investors’ growing interest in real assets, according to a recent study by BNY Mellon and Nobel-Prize winning economist Harry Markowitz.

The research found an 82 percentage point shift in sentiment towards real assets including infrastructure, project finance, etc. Endowments and foundations showed the largest commitment, with all of them said to be committing to the asset class soon. Some 88% of corporate pension plans and 86% of public pension funds also pledged future commitments.

Preqin’s most recent survey of unlisted infrastructure fund managers worldwide also showed 71% expected to deploy more capital in 2014 than in 2013.

The Japanese fund reported solid performance of a 4.73% return on investments in the third quarter of fiscal year 2013. It also gained ¥5.77 trillion in the same period in investment income, much higher than ¥3.24 trillion in the previous quarter.

OMERS earned $4 billion in investment income in 2013 from a 6.5% gross return. According to GPIF’s press release, the $65 billion Canadian fund earned an 11% rate of return on infrastructure investments from 2009 to 2013 on an annualized basis.