Research shows that German institutional investors are keen to increase their allocations to infrastructure, but the capital is unlikely to be directed to the domestic market – despite government efforts to attract private investment.
According to a survey by Bfinance, German investors plan to significantly increase their infrastructure exposure – the proportion of investors with no allocation is expected to fall from 60% to 40%, while those with allocations of 5% and above are expected to increase these substantially.
However, despite efforts by the German government to mobilise private capital into domestic infrastructure, a “reverse home bias” persists among German investors, which continue to favour overseas assets.
More than two thirds of respondents with regional allocations have a target of 10%-plus for Europe overall, while fewer than a quarter have a specific German target. More than half have 10%-plus allocations to North America.
The poll also revealed that nearly three quarters of respondents did not intend to change regional allocations in the future, “suggesting low German-specific allocations are likely to remain”.
Bfinance said it carried out the survey of pension funds, insurers, family offices, banks and corporates against the backdrop of the German government’s €500bn infrastructure fund and changes to rules for pension funds to make it easier to invest more in infrastructure.
Bfinance said around half of respondents cited a shortage of “suitable products and projects” as a key challenge to achieving their target allocation to German infrastructure.
The vast majority of respondents agreed that Germany could learn from supply-side reforms in other countries to make municipal infrastructure more attractive as an investment opportunity, the report said.
“The positivity around infrastructure appears to mainly relate to global themes, such as the megatrends of the energy transition and digital infrastructure,” the report said. “So, despite changes in the regulatory environment to date, the so-called reverse home bias persists for now.”
Peter Hobbs, managing director, private markets advisory at Bfinance, said: “Based on this survey, investors appear to be looking to the infrastructure asset class for the role it will play in the portfolio, rather than any Germany-specific role it could play. Investors have specific risk-return requirements, and obtain their exposure at a regional and global level.
“If Germany itself is to benefit from the rising investor appetite for infrastructure, it would seem necessary for supply-side reforms and incentives, such as those associated with the Deutschland funds, to gain far greater traction.”
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