Build it, and they will come
It isn’t hard to make the case for greater institutional investment in infrastructure. Apart from the worthy aim of creating jobs and wealth, it also provides uncorrelated returns compared with the JSE and the sovereign bond market. Some projects, such as renewable energy, can provide a predictable income stream through their dividends; others, such as schools, are still the preserve of ultra-long-term investors such as life offices that can wait for a decade or more before they get cash back.
But there are practical obstacles to investing in infrastructure for the majority of pension funds, which are defined contribution funds with daily priced accounts. These funds give members the choice of switching portfolios at a day’s notice.
Even some existing funds, such as the Futuregrowth Infrastructure Bond Fund, have limited liquidity and give money back only after an extensive negotiation and then probably staggered over several months.
The government’s suggestion that pension funds should invest directly in infrastructure projects would make the liquidity issue even worse. A fund would have to physically sell out of a project to meet any withdrawals.
Last month’s Sustainable Infrastructure Development Symposium SA was a worthwhile attempt by President Cyril Ramaphosa, public works minister Patricia de Lille and new infrastructure tsar Kgosientso Ramokgopa to showcase the projects available to the private sector.
But it was intriguing that the private sector panellists were all fringe players in the infrastructure debate.
One was Sygnia CEO Magda Wierzycka, whose core interest is passive portfolios and exchange traded funds.
It will be difficult to include infrastructure in one of these wrappers, after all.
And Nazmeera Moola of Ninety One, who is never dull, might have been a good choice to keep the audience awake in the post-lunch discussion, but she has colleagues who are far more knowledgeable about infrastructure, such as Alastair Herbertson, who comanages the Emerging Africa Infrastructure Fund.
Futuregrowth is unquestionably the premier infrastructure fund manager, yet it was not invited to take part, nor were key players such as Old Mutual Alternative Investments, Stanlib and Sanlam.
Perhaps the ANC has not yet forgiven Futuregrowth chief investment officer Andrew Canter for refusing to invest in a wide range of state-owned enterprises (SOES) four years ago.
Of course neither the state nor the private sector has any money burning a hole in its pocket right now.
That, however, hasn’t stopped mutterings from ANC secretary-general Ace Magashule about forcing pension funds to invest more in infrastructure.
But Canter says that if there are bankable, well-considered and wellmanaged projects, they will find finance.
If, on the other hand, the term infrastructure is used as a smokescreen for forced investment in clapped-out SOES, then a great deal of trust between the government and the private sector will disappear.
But we need to give Ramokgopa a chance.
His office aims to build the capacity to run major projects that doesn’t exist in the civil service right now.
So long as the process remains voluntary and not compulsory, it could be fruitful on both sides.