by Andrés Ramos, Content Marketing Specialist – Nasdaq Private Fund Solutions
In the first quarter of 2022 public pension plan investors reported $4.5 billion in allocations to infrastructure funds according to new data from eVestment. The figure is a 12.5% YoY increase from Q1 2021. The number of individual pension plans reporting commitments to the sub-asset class also grew by nearly 19% over that period.
This data is another signal of the growing and sustained appetite from public plan investors for infrastructure strategies within their real assets portfolios. Institutional investors have flocked to the sub-asset class as an inflation hedge and as an alternative to oil & gas energy strategies which have fallen out of favor due in part to a growing emphasis on ESG across the institutional investing community.
Another driving forces behind the increased interest from these investors is the advice of their private markets consultants who have recommended increasing allocations to infrastructure strategies. Using Market Lens, part of the eVestment Platform, we’ve reviewed the latest consultant outlooks and portfolio update presentations to see what these advisors are telling their clients about infrastructure.
Here are insights from three leading private markets consultants:
Meketa Investment Group
- Infrastructure assets are structured to provide a stable, predictable, long-term cash flow stream to investors
- As governments continue to confront the problem of financing necessary infrastructure projects while facing budget deficits, it is likely that private capital will be called upon more frequently and infrastructure investing opportunities will increase
- Meketa Investment Group recommends that plan sponsors with long-term time horizons consider allocations of 3% to 7% to infrastructure investments
- Private global infrastructure is anticipated to generate an attractive long-term, risk-adjusted return profile relative to equites and fixed income, and a similar profile to core private real estate
- The long-term nature of [infrastructure] assets match the profile of an institutional investor’s liabilities
- It is our recommendation that an allocation of between 5-10% can provide a meaningful increase in projected return with a commensurate level of acceptable risk
Private Infrastructure Snapshot: Robust Fundraising Fuels Transaction Volume
- Robust fundraising driven by demand from investors with low costs of capital and long-term investment horizons
- Average deal size growing as dry powder reaches an all-time high of ~$300 billion
- Despite competitive market, significant capital needed to support existing infrastructure, as well as megatrends representing areas of new growth