The top 100 institutional investors in infrastructure (by committed capital) often follow a more refined investment strategy than smaller investors which tend to invest more opportunistically. This sophisticated and experienced group of investors have developed a framework for investing according to a more specific set of preferences, which often leads to the more advanced and desirable areas of the market. As such, examining the investment preferences of these top 100 institutions can provide a valuable insight into some of the most attractive regions and industries in the infrastructure sector, as well as a chance to better understand the driving factors behind these strategies.
In terms of geography, the top 100 institutional investors in the asset class demonstrate a clear preference towards investment in developed markets such as Europe (78%), North America (61%), and to some extent Australasia (25%). This illustrates the risk/return profile sought by most of these investors, with the majority looking for strong, steady, inflation-linked cash flows often found in markets with developed GP offerings, healthy asset pipelines, decreased regulatory and political risk, and more readily available debt financing.
However, many institutional investors seek to diversify their infrastructure portfolios across a number of different regions, which has helped fuel the burgeoning infrastructure markets in emerging market economies. Of these emerging markets, Asia is the clear favourite among the top 100 institutional investors, with 34% seeking to invest in Asian opportunities. South America (20%) and Africa (12%) are also popular centres of activity, demonstrating the increasingly important nature of these developing economies to investors.
In terms of industry, the diverse nature of assets on offer in the infrastructure asset class along with equally diverse risk/return profiles, provide a rich assortment of investment opportunities for investors, with each sector displaying a unique set of characteristics. As a result, an investor’s industrial preferences tend to reflect their own specific investment strategy and appetite for risk and subsequently profitability. The tendency among the top 100 institutional investors in the asset class is towards core infrastructure assets in the areas of utilities and waste management (82%), energy (80%), and transportation (80%). Alongside these economic assets, 44% of the top 100 LPs target investments in social infrastructure projects, often through PPP/PFI frameworks.
Project stage preferences are also a key aspect of any investment strategy, with each project stage having an impact on the level of risk taken on. Again, portfolio diversification is the key with 70% of the top 100 institutional investors having already made or seeking investments across all project stages. 87% hold a preference for brownfield infrastructure assets, while 81% consider both developmental greenfield projects and/or more mature secondary stage opportunities.