Institutional investors intend to increase their infrastructure allocations in the medium term, according to Patrizia’s third annual client survey.

The survey showed that 60% of the 120 respondents plan to raise their infrastructure allocations over the next five years, while 11% intend an increase of more than 10%, indicating that investor sentiment towards infrastructure remains strong. This is a slight slowdown in the rate of growth (20% planned a “significant increase” in 2022) reflecting “a more tentative outlook” in the current market environment.

The insights illustrate the continued expansion and attractiveness of real asset portfolios despite the challenging market conditions, with a strong focus on renewables and alternative-energy solutions to drive this growth.

Graham Matthews, CEO of infrastructure at Patrizia, said: “Investors understand that the global megatrends of decarbonisation, digitalisation, urbanisation and demographic change make the long-term picture for infrastructure highly attractive. These megatrends underpin our global investment strategy at Patrizia and continue to drive the growth of our infrastructure platform, which now accounts for around 15% of Patrizia’s total assets under management.

“While the market environment has clearly subdued client sentiment, our survey shows that strong appetite remains for scaling infrastructure portfolios with a focus on the energy transition, supporting the fundamental convictions we have for our flagship European and Asia-Pacific infrastructure strategies.”

The acceleration to real assets continues despite market headwinds

However, according to the survey, investors still view market developments in infrastructure with cautious optimism, with nearly half of investors expecting a pick-up in transactions and investment opportunities over the next 12 months. Just over half (55%) also anticipate recurring income from their investments to remain stable, with around a third of investors expecting recurring income to increase. Likewise, about 70% of investors forecast valuations will either stay the same or increase this year.

Strong conviction for investments addressing global megatrends

Patrizia’s survey found that investors have a clear preference for allocating to the sectors that address global megatrends, with a particular focus on decarbonisation, with 56% saying they plan to increase their investments in renewable energy, such as solar and wind farms, over the next five years. Additionally, 45% expect to increase their allocation to energy transformation and alternative energy solutions, such as biogas and hydrogen. And nearly 40% plan to decrease their exposure to traditional energy sources, such as nuclear, coal and gas.

There is also positive investor sentiment towards digital infrastructure, with around 35% of respondents planning to grow their exposure to telecommunication infrastructure and fibre, as well as social infrastructure, where nearly a quarter plan to increase allocations.

Matthews added: “As our survey indicates, investors have a clear view on future-proofing their investments by increasing their allocations to key transformational sectors like the energy transition, digital infrastructure and social infrastructure.

”With our thematic and thoughtful approach to investing, we are able to fully support our clients with the construction of portfolios that have suitable exposure to all of these sectors, which will ultimately shape how we live in the future and enable smarter, cleaner and better-connected communities across the globe. From a strategic perspective, our clients recognise the attractiveness of the mid-market segment, aligning with our own belief that mid-market deals offer unique opportunities to drive investment performance.”

The survey indicates that investors expect the lower mid-market segment – equity investments of less than €250m – to be the sector most likely to outperform the broader infrastructure market over the next five years, with 16% of investors anticipating higher returns here.

Matthews added that this view is in line with Patrizia research that has found that mid-market strategies significantly outperform their large-cap peers, as they benefit from a higher deal supply in a less-efficient market, source more from independent companies without prior private ownership, and provide diversification benefits to a portfolio.

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