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Going down

This year’s Infrastructure Investor 30 ranking shows there is less money to invest in the asset class among the 30 largest infrastructure investors.

As headline figures go, this year’s Infrastructure Investor 30 (II30) – a global ranking of the largest infrastructure direct-investment programmes released by Infrastructure Investor magazine – has produced a somewhat startling one: $171.51 billion. 

That’s the amount the 30 largest infrastructure investors have formed – and by formed we mean either raised or committed capital – for the asset class from 1 January 2007 to 30 April 2012. The problem is that amount is noticeably less than the $183.1 billion registered in last year’s ranking, covering the period from 1 January 2006 to 30 April 2011. 

If you consider that the $183.1 billion amassed in last year’s ranking represented a 30 percent increase on the $140.5 billion recorded in II30’s 2010 debut, then the picture gets even darker. To put it bluntly, the 30 largest investors in infrastructure have formed less capital over the last five years, which means there is less money available to fund the asset class’ development.

In a way, this isn’t too surprising. Fundraising has become notoriously tough – and as strong fundraising years like 2006 disappear from our rolling five-year eligibility period, the total amount formed for the asset class was bound to start shrinking. But it’s still an ominous finding.

Another unsurprising, yet sobering, find is that pension funds are committing less money to infrastructure. In this year’s ranking, the aggregate funding set aside by pensions in the top 30 totalled $49.5 billion, compared with the $53.9 billion recorded in last year’s ranking. 

This is unsurprising because pensions are the asset class’ biggest investors. So if the total capital formed by the 30 largest infrastructure investors decreased in this third edition of the II30, then logic necessarily dictates a reduction in the amount of pension capital formed. 

But it’s still sobering to discover that, at a time when governments are clamouring for more pension investment in infrastructure and pension appetite for the asset class is widely reported to be growing, the actual amount of capital formed by the largest pension funds in the industry is falling. 

Time will tell if this diminished pension engagement is a consequence of the dismal macroeconomic situation, if it represents a plateauing or declining interest in the asset class, or if there are structural issues standing in the way of pension funds making the level of commitment to the asset class that they would like.

An alternative, but no less disturbing, hypothesis is that there is less capital being formed for infrastructure investing, because, in spite of all the brouhaha around infrastructure as a way to kick-start crisis-hit economies, the opportunities just haven’t been there.

This seems to be the view of Lou Jiwei, the head of the China Investment Corporation, a $410 billion sovereign wealth fund, who argues today in an interview with the Wall Street Journal that, despite insistent calls for more infrastructure spending over the last three years, “global investment in infrastructure hasn’t increased, but decreased”. 

The real question going forward is whether the 2006-2011 period will be remembered as the golden age of infrastructure allocations, or if the current slump is just a low-point on the road to long-term health.

To view the full list of the world’s 30 largest infrastructure investors, please click here.