US-Based Institutions Investing in Infrastructure over the Next 12 Months – December 2014

by Brian Chung

  • 23 Dec 2014
  • INF

Preqin’s fund searches and mandates feature on Infrastructure Online contains extensive information on 114 US-based institutional investors that plan to commit capital to the infrastructure asset class in the next 12 months. These investors have aggregate assets under management (AUM) of more than $3.6tn and, on average, currently allocate approximately 3% of total assets to infrastructure, below the average target of 4%.

US-based investors in infrastructure allocate capital to the asset class from different areas of their portfolios. Among these investors, the largest proportion (40%) will invest through an allocation to real assets, as shown in the chart below. Investors committing capital to infrastructure through a private equity allocation account for 24%, while 18% of LPs have established separate infrastructure allocations. 

Target allocations to the infrastructure asset class are small when compared to other alternative asset classes. However, as the asset class continues to grow and more investors decide to commit capital to infrastructure investments, target allocations should rise accordingly. Among the investors investing in infrastructure in the next 12 months with target allocations, 10% maintain target allocations of less than 1% of total assets. A majority of investors (67%) maintain a target between 1% and 4.9%, indicating that infrastructure investments remain as a smaller proportion of institutional portfolios. Nineteen percent of investors maintain a target allocation between 5% and 9.9% and investors with a target of 10% or more represent 10% of US-based institutions who will invest in the next 12 months.

Unlisted fund commitments remain the primary route to market for the vast majority of investors, with 87% of investors choosing infrastructure funds. Direct investments in infrastructure assets, an increasingly attractive method of investing in the asset class, will be utilized by 23% of investors, while 10% will invest in the asset class via publicly listed infrastructure funds. An overwhelming majority (97%) will invest through primary strategies and 10% will choose to invest through debt and mezzanine strategies. A further 5% of investors will consider either fund of funds commitments or buying funds on the secondary market.

In regards to geography, 56% of institutions will target infrastructure investments on a global basis. Infrastructure investments in North America will be utilized by 55% of future investors; Europe-focused investments will be targeted by 15%. Infrastructure assets throughout emerging market economies and Asia will be targeted by 10% and 4% of investors respectively.

Employees’ Retirement System of Texas is one example of a US-based investor targeting infrastructure investments in the next 12 months; the public pension fund will work towards its target allocation of 3% and will seek to commit up to $375mn to unlisted infrastructure funds. California Public Employees’ Retirement System (CalPERS) will commit $4bn to both unlisted funds and direct investments while targeting brownfield projects in industries such as energy, transportation, airports, toll roads, water and power.

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