You can take it to the bank — institutional infrastructure investing is poised for a growth spurt.
Spotting trends is an important part of investment decision making, but most institutional investors — especially generally conservative pubic pension funds and insurance companies — do not want to be the first one into a new market for fear that it could turn out to be a mirage and they will be all alone, left to explain to an investment committee why they, but few of their peers, decided XYZ Fund was a great opportunity.
Many of these investors are only comfortable investing in a new market after their peers have joined them.
In infrastructure investing, institutional investors have taken their time getting in the market in large part because there is a concern that the market for deals is crowded and will only get more crowded. It will take time for the number of quality assets available for investment to increase.
Well, I think I’ve spotted a trend that should interest investors — in the past month or so, several countries have announced plans for programs and facilities to encourage infrastructure investment, and while many of these won’t exclusively be for private investor participation, they all will offer these types of opportunities for institutional investors, and that means more assets available, which should take some of the edge off increasing competition and prices for these investments.
Here are several such initiatives that have been launched in the past few weeks:
- World Bank welcomes China-led infrastructure bank (BRICS Bank)
- Singapore expresses intent to join China-led regional bank (Asian Infrastructure Investment Bank)
- White House announces $10b fund for rural infrastructure (Rural Infrastructure Opportunity Fund)
- Build America Investment Initiative (Build America Transportation Investment Center)
- U.K. infrastructure investment increased to £383 billion (National Infrastructure Pipeline)
- Australian superannuation funds call for pensions to link with the rest of the world on infrastructure (Pensions 20)
- Asset recycling initiative: Asset sales on understarters orders (Australian Asset Recycling program)
Coinciding with these new programs, two leading institutional investors this year announced their intentions to get into infrastructure investing:
- Norges Bank reiterates call to allow private equity in Pension Fund Global
- GPIF plans infrastructure investment, cuts Japanese bonds
And, finally, in the past three to four years, including just in the past four months, several investor-led infrastructure investing “clubs” have formed to pool pension and insurance capital to invest in infrastructure:
- Canada’s OMERS and Japan’s PFA and Mitsubishi Corp. announce first close of Global Strategic Investment Alliance
- U.K. government revives infrastructure drive
- Swiss pensions form infrastructure investment club
- The Fiduciary Infrastructure Initiative
If that is not a trend, I don’t know what is.
These examples are in addition to the past decade or so when institutional interest in the asset class has been gaining traction. Now it seems that interest could be reaching a critical mass.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
