Institutional interest in infrastructure continues to rise, despite pension funds’ concern over rising prices.
The Institutional Infrastructure Survey of 57 institutional investors, conducted by IPE and Stirling Capital Partners, shows that two-thirds of major institutional investors globally invest in infrastructure.
The majority expect to raise their allocation in the next 18 months.
However, around 53% of respondents said that, as an asset class, infrastructure remains too expensive.
Michael Stirling, founder of Stirling Capital Partners, said: “Infrastructure investments are resource intensive and can be difficult and expensive to acquire.
“It is about identifying value in off-market opportunities and having the relationships to execute those transactions.
“If you get it wrong, the costs can be too high for institutional investors.”
The most popular target band of returns is 5-10%, the survey found.
More than four-fifths of investors use pooled funds, while fewer than three in 10 take direct ownership in infrastructure.
Pension funds’ appetite for taking on equity was down sharply this year – respondents seem much keener on a mixture of debt and equity.
Lack of internal resources to undertake due diligence was the single most common obstacle specified by surveyed institutional investors considering infrastructure.
“It is true many pension funds are missing out on good opportunities for lack of understanding and resource,” said Stirling.
“But, even in the more popular pooled arena, there are 160 funds currently out there raising capital. Many of the funds may appear similar, but the ability to do diligence and select ‘the right fund’ is how indirect investors can benefit.
“It’s a big, complicated universe for capital owners to understand.”
Renewables is the most popular type of infrastructure investment for institutions, narrowly ahead of ports and airports.
The majority of investors are comfortable with holding periods in excess of 10 years, the survey found.
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