Large investors are heading to emerging markets – are others missing a trick?

We’ve just released our annual Global Investor 50 ranking, featuring the largest infrastructure investors in the world. There’s plenty to unpack, so we encourage you to check out our GI 50 hub for a plethora of content, including interviews with some of the investors on it and a survey of how many are feeling about the world right now.

As is customary, almost half of the $464.5 billion committed to the ranking – or $222.5 billion – came from the top 10 institutions, which mostly maintained their positions from last year.

One of the interesting – if not entirely obvious – things about the top 10 is how exposed many of these institutions are to emerging markets, often as direct investors. As we reported in this week’s The Pipeline, ranking members the Abu Dhabi Investment Authority (second in the GI 50), via a subsidiary, Caisse de dépôt et placement du Québec (third) and Dutch pension administrator APG Asset Management (sixth) signed a memorandum of understanding with sovereign wealth fund the Indonesia Investment Authority, to establish Indonesia’s first infrastructure-focused investment platform. CDPQ head of infrastructure Emmanuel Jaclot said the MoU gave the investors “an opportunity to jointly build a portfolio of critical road assets in one of the fastest growing economies in the world”.

That’s just one example. A cursory look at the top 10 finds most participants have anything from a few emerging market assets in their portfolios to a significant exposure. CPP Investments – which has been sitting at number one since we launched the GI 50 – is a case in point. The Canadian pension’s infrastructure allocation, as measured by our ranking, currently amounts to $36.6 billion, with about 25 percent of it invested in emerging markets.

It’s fair to say that is not representative of mainstream investor opinion. A September 2020 survey from placement agent Probitas Partners saw emerging markets score very low overall as investment destinations for institutional investors. What’s more, not one of the 60 LPs surveyed chose Brazil, sub-Saharan Africa, or the Middle East and North Africa as investment destinations.

When asked why they take a different view, CPP Investments head of infrastructure Scott Lawrence told us: “We take a long-term approach to investing and, quite frankly, see retraction of global investors from emerging markets as an attractive opportunity.”

Things are, perhaps, slightly different when it comes to infrastructure, with 40 percent of investors surveyed in our LP Perspectives 2021 study showing greater interest in Asia-Pacific. That has translated at the GP level, with KKR raising the region’s largest infrastructure fund this year on $3.9 billion. Stonepeak Infrastructure Partners is also targeting APAC with a new $3 billion vehicle. Of course, it must be noted APAC contains both emerging and developed economies, helping to make it more palatable.

When you cast your eyes on Africa, for example, whose countries are mostly regarded as pure-play emerging markets, the picture is very different. That’s evident in our recent African infrastructure roundtable – published as part of our Growth Markets report – where participants identify what they deem a “wildly inflated” perception of risk as the number one deterrent to private capital infrastructure investment across the continent.

There are honourable exceptions of course, such as Actis, Meridiam and AP Moller Capital. But overall, international managers and investors are staying well away from Africa – and emerging markets in general.

It seems that not a week goes by without existing or new players launching new products targeting the energy transition, digital infrastructure or infrastructure debt. Few are sparing a thought for emerging markets.

Except for some of the biggest infrastructure investors in the world – they seem to be thinking about them increasingly seriously.