Time for a dedicated infra strategy, says Nuveen

The investment management division of TIAA argued the infrastructure asset class is providing opportunities for institutions to create formal investment strategies.

Infrastructure has matured as an asset class, offering high-yield returns with low volatility, to the point where more institutional investors should consider a dedicated allocation strategy, according to TIAA’s investment management division, Nuveen.

In its report, Infrastructure: Opportunity for yield and diversification, Nuveen said global infrastructure investment opportunities are expanding, providing an opportunity for institutional investors to gain exposure to assets providing long-term stability.

“Infrastructure is a real asset offering institutional investors distinct advantages over traditional and alternative asset classes,” the report stated.

Nuveen’s recommendation to investors comes at a time when the asset class is receiving heightened publicity due to a global infrastructure financing gap, estimated by the World Economic Forum at $1 trillion annually. Investors have taken notice, with two US pensions – Illinois Municipal Retirement Fund and Ohio Police and Fire Pension Fund – announcing inaugural infrastructure commitments in the last two weeks.

Institutional investors have traditionally invested in private assets versus listed infrastructure stock, but public investments offer high returns, growth potential and diversification, the report stated. It added that private equity and debt were best for qualified institutional investors, while public infrastructure opportunities can be good for institutions and individual investors.

Nuveen cited industry data from 2002 to 2015 stating that infrastructure private equity offered the highest returns, averaging 11.2 percent, with volatility at 20.3 percent. Private investments saw 8.55 percent returns on investment with 11.21 percent volatility.

Private debt had 5.3 percent returns with 7.55 percent volatility and public debt in the form of municipal bonds had 4.74 percent returns and volatility.

The investment manager described what it recognises as four categories for infrastructure investments, public and private debt and equity. Nuveen said it considers core infrastructure investments to be in renewable energy, midstream pipelines, liquefied natural gas storage, regulated utilities and transportation. Core-plus investments were identified as telecommunication towers and data centres.