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Sovereign Wealth Funds Investing in the Infrastructure Asset Class

by Emma Davis

  • 01 May 2012
  • INF

The infrastructure asset class has become increasingly attractive to sovereign wealth funds due to the long-term and stable returns and the low risks. These attributes suit sovereign wealth funds, which operate under long-term investment strategies and are not restrained by the liquidity requirements that can affect other institutional investors such as insurance companies and pension funds. 56% of all sovereign wealth funds are known to actively invest in the infrastructure asset class as of Q2 2012, 36% do not commit capital to infrastructure and the information is unknown for the remaining 8%.  A growing number of sovereign wealth funds invest in the infrastructure asset class to aid in the development of their domestic economies.

There has been a 16% increase in the number of sovereign wealth funds investing in infrastructure since 2011. Several new sovereign wealth funds have launched and have allocated capital to the infrastructure market. Fifty four percent of the sovereign wealth funds investing in the infrastructure asset class are located in Asia and MENA, and sovereign wealth funds based in these two regions account for 77% of the aggregate value of all the sovereign wealth funds.  Two of the three largest sovereign wealth funds are located in these regions. Abu Dhabi Investment Authority is one of the largest sovereign wealth funds investing in infrastructure, with USD 627 billion in total assets under management and a 5% allocation to the asset class.

Of the sovereign wealth funds investing in the infrastructure asset class, 41% have more than USD 50 billion in total assets under management, 40% have between USD 10-49 billion and 19% have less than USD 10 billion. Due to the resources available to the sovereign wealth funds, many gain exposure to infrastructure through direct investments. Ninety percent invest through direct strategies. Of these investors, 45% will only invest through direct investments, while a further 45% will invest through fund commitments as well as direct investments. Ten percent of the sovereign wealth funds invest only through co-mingled vehicles.

In terms of geographical preferences for these investments, the most popular areas are Asia and Europe. Forty five percent of the sovereign wealth funds target infrastructure investments in Asia, with the same proportion having a preference for Europe. In comparison, 42% of the sovereign wealth funds will target North America and 32% will target MENA. Typically, the sovereign wealth funds that target MENA will be domestic investors such as Dubai International Capital. Fifty two percent of the sovereign wealth funds will consider global infrastructure investments.

Infrastructure remains an important asset class for sovereign wealth funds and they will continue to be significant investors in the asset class. There has been an increase in the number of sovereign wealth funds targeting a globally diverse portfolio, representing a change in focus from pure developmental infrastructure investments. Sovereign wealth funds are looking to take advantage of international investments, as well as domestic vehicles.

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