Target allocations grew 42 basis points to
5.50% in 2024, while institutional investors remain under-invested
to the asset class by 123 basis points
Despite moderating portfolio returns in 2023,
three-year average return of 10.1% exceeds current target return of
9.3% by 78 basis points
Investor sentiment remains favorable, as
institutions expect to actively deploy capital over the coming
years
Institutions globally continue to favor
investments in North American infrastructure opportunities
Digital, energy and transportation
infrastructure are the sectors of greatest interest over the next
12 months
Despite institutions’ under-allocation to infrastructure, 2023
was the most challenging year for private infrastructure
fundraising since 2015, according to the second annual
Institutional Infrastructure Allocations Monitor released today by
Hodes Weill & Associates and Cornell University’s Program in
Infrastructure Policy. However, in light of growing target
allocations to infrastructure and positive investor sentiment, the
pace of annual investments is expected to accelerate over the
medium-term. Globally, institutions are under-invested in
infrastructure by an average of 123 basis points versus target
allocations. Over the past 12 months, the gap between actual and
target allocations narrowed, as actual allocations grew faster than
targets among repeat respondents.
Over the past 12 months, institutions increased their target
allocations to infrastructure by an average of 42 basis points to
5.50%. Amidst a backdrop of a higher-for-longer interest rate
environment, heightened inflation, and global decoupling in the
face of deglobalization, institutions largely spent the last 12
months on the sidelines, focused on managing their existing
portfolios and waiting for valuations to find a bottom. The growth
in target allocations represents an effective increase of 8.3% in
capital allocations, implying the potential for an additional
US$34.5 billion of incremental investment among survey participants
alone. Extrapolating this to the broader universe of institutional
investors, this could imply approximately US$0.5 trillion of
additional investment.
To download the full report, please visit:
www.hodesweill.com/research.
Although infrastructure fundraising has seen headwinds in 2023
and during the first half of 2024 – especially in comparison to the
pace of the late 2010s and early 2020s – the outlook for future
fundraising remains promising when taking into account waning
portfolio denominator and numerator issues, as well as go-forward
investor objectives. The tailwinds for the infrastructure sector
are tangible, and institutions continue to take notice of
performance in the asset class amidst macroeconomic volatility and
rising political uncertainty.
Of note, 45% of institutions report a target allocation to
infrastructure of less than 5%, leaving a compelling runway for
continued growth in the role the sector plays across institutional
portfolios. The Americas lead the world in regional target
allocations, with an 8.1% weighted average target allocation
dominated largely by Canadian institutions, which report an average
target allocation of 12.6%. At 5.4%, U.S. target allocations exceed
those in EMEA at 4.3% and Asia Pacific at 5.2%. As infrastructure
matures in jurisdictions newer to the asset class, it is reasonable
to expect that target allocations to keep climbing and will
resemble the trajectory of those in jurisdictions at the forefront
of infrastructure including Canada, Australia, and the Nordic
Region.
Looking ahead to the next 12 months, approximately four in five
institutions plan to hold their allocations flat, with 20% of
institutions planning to increase their allocations – down from 43%
in 2023. While increases in target allocations are moderating, only
1% of respondents have plans to decrease their allocations to
infrastructure. Favorable conviction and strong relative investment
performance are expected to contribute to continued growth in
allocations over the coming years; further, the asset class has
demonstrated its role as a portfolio stabilizer amidst broader
market uncertainty.
Mark Rudovic, Principal and Head of Real Assets at Hodes Weill,
said, “The global market environment has become increasingly
volatile over the past several years, with fluctuating interest
rates, inflation and geopolitical considerations requiring
institutions to assess a range of risks. What’s more, 2024 is the
biggest election year in history, with national and regional
elections to be held in more than 50 countries with a combined
population of 4.2 billion people. The potential for broader
geopolitical changes following global elections also creates a
measure of uncertainty that may lead institutions to take their
feet off the gas while they work to assess changes in the political
landscape. That said, investor sentiment towards infrastructure
remains favorable, and we believe this will drive increased
investment as institutions return to normal deployment rates.”
Both actual and target allocations have increased, with the
growth in actual allocations (+76 basis points) outpacing the
growth in target allocations (+29 basis points) for repeat
participants. Investors cite liquidity constraints as a significant
factor, driven by limited distributions from existing
infrastructure and other private markets investments, including
real estate, private equity, and venture capital. This dynamic has
brought many investors closer to their target allocations, thereby
restricting their ability to deploy capital at the scale and pace
consistent with historical levels.
Infrastructure portfolios continue to demonstrate resilient
revenues and offer investors strong risk-adjusted returns, despite
general market volatility. In 2023, institutional infrastructure
returns moderated to 7.1%, falling below long-term target returns
after significant outperformance in 2021 and 2022. Institutions
largely attribute this to the broader macroeconomic environment and
view performance in 2023 as favorable relative to other asset
allocations. The three-year average return of 10.1% surpasses
target returns by 78 basis points, in part attributed to “inflation
participation,” an arguably unique attribute of infrastructure
investing.
In terms of geographic focus for investment, 32% of investors
expect to increase allocations to North America – more than any
other region, but only slightly ahead of Europe. Roughly 25% of
institutions plan to increase allocations to Europe over the next
12 months. Institutions are favoring higher-return Value-Add and
Core+ strategies as the rise in interest rates continues to impact
the relative attractiveness of, and appetite for, SuperCore and
Core strategies.
Looking at preferences by infrastructure sector, 85% of
institutions indicate an intention to invest in digital
infrastructure in 2024, down slightly from 87% in 2023. This
sustained enthusiasm reflects institutions’ commitment to
supporting the digital economy’s infrastructure. Since 2019, the
drive towards technology, enterprise modernization and advanced
data processing has significantly accelerated. Amidst rapid
commercial adoption of emerging A.I. technologies, digital
strategies remain in favor, with continued strong demand for data
center investments. Consistent with recent fundraising data,
roughly 36% of respondents indicate plans to increase allocations
to renewable energy and storage, which is more than any other
energy subsector.
Globally, 89% of institutional investors consider ESG at least
“slightly important” to their investment decisions, while only 11%
consider ESG “not at all important” to their investment decisions.
These results reflect a 5% year-over-year increase in institutions
that take ESG into some level of consideration when making
investment decisions. Still, there remains considerable regional
differences in ESG definitions and integration, especially with
respect to the level of data and reporting required of investment
managers.
Dr. Rick Geddes, Founder and Academic Director of Cornell
University’s Program in Infrastructure Policy, said, “The 2024
Allocations Monitor reveals that, although there has been
prodigious public infrastructure spending in North America, the
need for private capital to support these vital needs is greater
than ever. The 2024 Allocations Monitor is also pivotal because for
the first time it reports not only levels, but also trends, in
global institutional investor allocations into infrastructure. This
year’s report also suggests that it is important to educate the
investment community, including individual retail shareholders,
about opportunities in the infrastructure investing space.”
102 institutions from 20 countries participated in the survey,
representing aggregate AUM exceeding US$8.2 trillion and portfolio
investments in infrastructure totaling approximately US$350
billion.
About Hodes Weill
Hodes Weill & Associates is a leading, global capital
advisory firm focused on real estate, infrastructure and other real
assets. The firm has offices in New York, Denver, Hong Kong,
London, Amsterdam and Tokyo. Founded in 2009, Hodes Weill provides
institutional capital raising for funds, transactions,
co-investments and separate accounts; M&A, strategic and
restructuring advisory services; and fairness and valuation
analyses. Clients include investment and fund managers,
institutional investors, lenders, and public and private owners of
assets and portfolio companies. For more information, please
contact or visit www.hodesweill.com
*All U.S. regulated capital market and securities advisory
services are provided by Hodes Weill Securities, LLC, a registered
broker-dealer with the SEC, and a member of FINRA and SIPC, and
internationally, by non-U.S. Hodes Weill affiliates.
About Cornell University’s Program in Infrastructure
Policy
The mission of the Cornell Program in Infrastructure Policy is
to improve the delivery of civil, energy, social, and digital
infrastructure through dedicated, high-quality research, teaching,
and public outreach efforts. We focus on the procurement, funding,
alternative financing, and technological developments across the
infrastructure industry. We maintain a network of scholars across
multiple disciplines both inside and outside of Cornell University
who share an interest in public policies impacting infrastructure
delivery. We collaborate with partners in the public, private and
non-profit sectors to develop and disseminate research, develop new
educational courses, share industry best practices, organize
webinars, and host conferences about infrastructure policy.
Disclaimer
For informational purposes only. This is not a solicitation to
buy or sell any securities or securities products. Please refer to
the full report for important disclaimers. The full report can be
found at www.hodesweill.com/research
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Media Contacts ICR on behalf of Hodes Weill Jason
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