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Ashby H.B. Monk and Rajiv Sharma

Institutional investors – pension funds, sovereign funds, endowments and family offices – control an enormous amount of investable capital. Estimates of their investment capacity range up to $100 trillion total, worldwide. Historically most of them have invested passively through funds managed by others, surrendering substantial fractions of the returns from these investments to the investment managers. Infrastructure, with its long-term, inflation-adjusted, moderate risk_return cash flows, represents an ideal kind of investment for these investors. However, infrastructure projects are all unique and involve multiple kinds of risks in each phase of their development, that require specialized skills to evaluate. A few large pensions and sovereigns have developed the internal capacity to evaluate, invest in and manage infrastructure projects, with returns offer exceeding 12 percent. The costs of developing this capacity represent a small fraction of the fees typically paid to investment managers. Other institutional investors can benefit from lessons learned by these pensions. Pension funds that are too small to justify doing this can band together and set up aligned investment managers owned by them to invest their syndicated capital.