Infrastructure can be a solid asset class for pension plans, but it requires a long-term focus—and many policymakers and investors are dominated by “short-termism.”
That was the message David Denison, president and CEO of the Canada Pension Plan Investment Board, gave in his speech to the Canada-United Kingdom Chamber of Commerce in London today. Denison spoke of the important role that long-term investors can play in infrastructure, and the conditions that can attract pension funds.
Denison referenced the recent article in The Economist, in which Canadian pension plans such as CPP, OMERS, Teachers’ and the Caisse were dubbed “Maple Revolutionaries.” The article pointed to these funds’ abilities to successfully operate as long-term investors, thanks to long-term liabilities, strong governance models and sophisticated internal investment teams.
Denison said that the only revolution that needs to happen in the pension space is a shift from short to long-term thinking.
“For many [policymakers and investors], long‐term thinking means a horizon of 12 to 24 months,” he said, “whereas we are sorely in need of people making decisions based upon timeframes of 10, 20 years or longer to address the issues we face today.”
Contrasting the Canadian funds with U.K.-based funds, which are typically smaller and more numerous, Denison urged U.K. policymakers to consider efforts to consolidate small plans in order to build funds of sufficient scale and capability to become long-horizon investors.
However, he also noted that the number of long-horizon investment organizations in the world is small.
“There is more demand for long‐term capital to be invested in infrastructure globally than there is supply,” he said. As such, policymakers need to be careful that their decisions do not unintentionally reduce the supply of long-term capital.