A collection of Futuregrowth thought leadership pieces, media articles and interviews.

Sustainability of infrastructure projects for retirement funds

31 Mar 2015



Infrastructure spend is seen as an important driver of economic development and growth as well as job creation. China is a prime example of this with an economy that has grown more than seven times in the last 20 years or so. This would have been unobtainable without the sheer level of capital infrastructure investment that that government undertook.

South Africa as an emerging economy has a massive infrastructure backlog that needs to be funded as well as continued investment roll-out. As a result the South African government has targeted a required infrastructure investment of around R4 trillion over the next 15 years to address some of this. It is debatable whether or not this enough. Although it doesn’t bring South Africa’s gross capital investment as a percentage of GDP close to emerging market standards, it is a start in the right direction assuming government is able to get the projects off the ground and bankable. The government is expected to contribute some of the envisaged funding but there is definitely a need for private sector funders (banks and institution investors) to play a role.

In the context of a retirement fund, these types of investment will typically form part of a retirement fund’s private equity allocation or through its allocation to bonds or debt. Changes to Regulation 28 of the Pension Funds Act have afforded investors higher allocations to these types of investments and a large portion of these are typically of an unlisted nature. It is important to note that investments in infrastructure assets are not to be seen as a different asset class as they need to fit within an already defined asset allocation strategy, be it debt or equity or property.  These assets are typically long term in nature and act as a natural asset/liability match for retirement funds. The returns afforded to retirement funds need to be on full commercial terms, therefore affording investors sound risk/return characteristics. There is a role for subsidised financing to make some transactions bankable, but this can only be done through the so-called Development Finance Institutions (DFI).

"You might be interested in listening to an interview with Jason Lightfoot and Candice Paine on BizNews: South African infrastructure spend - who drives the process?

Futuregrowth’s Infrastructure & Development Bond Fund, with assets over R10bn, has played an integral part in infrastructure funding since its launch. By providing access to a sustainable vehicle to fund initiatives in the infrastructure and development space, pension funds can gain exposure to sectors such as power, transport-corridors, healthcare, transport, education, and housing.  Over 15 years, the fund on average has outperformed the JSE All Bond Index (the industry standard benchmark for bond funds) by more than 2%.

In a low-return environment, these investments can offer a good alternative to traditional investments in a diversified portfolio but it is of utmost importance to choose an experienced investment manager who has the skills to both assess the risks and correctly price for it.

Find out more about the Futuregrowth Infrastructure & Development Bond Fund.