Institutional infra investment to hit $130bn in next two years

The shift towards real assets is ‘here to stay’, according to survey, as infrastructure proves more popular than real estate with public pension funds and SWFs.

A shift towards real assets is “here to stay” the Official Monetary & Financial Institutions Forum, a London-based think tank, found in its latest survey.

According to the study, which was conducted in collaboration with BNY Mellon and surveyed 65 sovereign wealth funds and public pension funds with total assets under management of $11.6 trillion, 82 percent of respondents said they do not intend to exit any of their real asset investments “as monetary policy normalises and yields rise on traditional assets”.

In addition, the survey found that infrastructure was more popular than real estate with 70 percent of institutions surveyed saying they would increase their allocation to the asset class compared with just 32 percent which planned the same for real estate. None of the investors surveyed are planning to decrease their exposure to infrastructure.

However, in absolute terms, the real estate sector still beat infrastructure, since OMFIF estimated the planned increases to real estate could amount to $334 billion compared with $130 billion estimated for infrastructure in the next 12 to 24 months.

“Pension funds are leading these trends and are now more eager to increase their investments in real assets,” the report stated. “Most were slow to begin allocating, while sovereign funds were early, enthusiastic investors. This means that pension funds are starting from a much lower base: for infrastructure, their allocation stands at 2 percent, compared with 11 percent for sovereign funds.”

The motivation behind investors’ shift towards infrastructure includes dwindling fixed-income returns, changing demographics in emerging markets that are fuelling strong infrastructure needs and investors’ pursuit of diversification.

While OMFIF did not name the institutions surveyed, a spokesman for the organisation said they represent 32 percent of the total $36.2 trillion AUM of all global public investors.

As we’ve recently reported, numerous pension funds have recently announced plans to increase their allocation to infrastructure.

In March, Strathclyde Pension Fund recommended its investment committee begin seeking managers and funds with an overseas or global infrastructure mandate to grow its existing infrastructure portfolio, which currently stands at around £600 million ($794.3 million; €684.0 million).

More recently, in May, the $78 billion Oregon Public Employees Retirement Fund said it plans to nearly double its infrastructure exposure from $1.3 billion currently to $2.4 billion within the next five years.