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Fund managers must fill infrastructure gap -Kjaer

By Claire Milhench LONDON, Nov 12 (Reuters) - Fund managers need to create infrastructure products that better satisfy pension funds' desire for long-term stable income, said Knut Kjaer, a top adviser to multi-billion euro national pension schemes. Investment in infrastructure such as power stations, water treatment plants, airports and toll roads could provide decades of inflation-linked revenue for pension funds, but suitable products are limited. "There are great market opportunities for managers that can create (products) with a fee structure, risk profile and time horizon that better resonate with the investor need for infrastructure in the portfolio," he told Reuters. Kjaer, a former chief investment officer of Norges Bank Investment Management, which oversees Norway's $500 billion-plus sovereign wealth fund, and an adviser to Ireland's National Pensions Reserve Fund, believes infrastructure is the ideal asset for long-term investors. "It can produce a quite stable cash flow in real terms, at moderate risk levels," he said. The supply of these investments is likely to be steady as strapped-for-cash governments seek suitable candidates for privatisation, such as airports. To date fund managers have focused on providing shorter-term and leveraged private equity-style infrastructure funds that have a transaction or fee incentive, meaning investments are exited earlier than pension funds might like. "While the investor would like to ... tap the real cashflow over many years, managers are incentivised by transactions," Kjaer told Reuters at the CFA Institute's European Investment Conference in Copenhagen. Kjaer believes talented investment managers could fill the gap. All but the very largest pension funds would not have the capacity to own infrastructure assets directly. To date, only the large Canadian pension funds have been especially active in infrastructure. Ontario Teachers' Pension Plan and the Ontario Municipal Employees Retirement System teamed up to acquire the 30-year contract to run the rail link between the Channel Tunnel and London. UK-based fund manager M&G is looking to build products that give long-term investors access to infrastructure income streams. (Editing by Sinead Cruise and David Hulmes) Keywords: PENSIONS/KJAER (claire.milhench@thomsonreuters.com; +44 (0)20 7542 3571; Reuters Messaging claire.milhench.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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