While global institutions remain underallocated to infrastructure, the pace of investments in this asset class is expected to accelerate in the coming years due to growing target allocations and positive investor sentiment, according to the second annual Institutional Infrastructure Allocations Monitor survey released on June 20 by Hodes Weill & Associates and Cornell University’s program in infrastructure policy.
Globally, institutions are underinvested in infrastructure by an average of 123 basis points versus their respective target allocations, the survey found. But over the past 12 months, that gap between actual and target allocations has narrowed, as actual allocations grew faster than targets.
Indeed, over the past 12 months, institutions have increased their target allocations to infrastructure by an average of 42 basis points to 5.5%. Moreover, the report noted that amidst a backdrop of a higher-for-longer interest rates, still substantial inflation and global decoupling in the face of deglobalization, institutions have 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 for infrastructure represents an effective increase of 8.3% in capital allocations, implying the potential for an additional $34.5 billion of incremental investment among just institutions participating in the survey. Extrapolating this data to the broader universe of institutional investors, this could imply about $500 billion of additional investment in infrastructure assets.
The survey also found that while 2023 was a difficult year for private infrastructure fundraising, the asset class enjoys a number of tailwinds, including strong performance amidst macroeconomic volatility and rising political uncertainty.
Among survey participants, institutions in the Americas have the highest target allocations to infrastructure, with an 8.1% weighted average target allocation dominated largely by Canadian institutions, which reported an average target allocation of 12.6%. In the U.S., the figure stands at about 5.4%, which exceeds those in Asia-Pacific at 5.2% and EMEA at 4.3%.
“As infrastructure matures in jurisdictions newer to the asset class, it is reasonable to expect 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,” the survey said.
Looking ahead to the next 12 months, about four in five institutions plan to hold their infrastructure allocations flat, while the remaining 20% of institutions plan 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,” the survey said.
Favorable conviction and strong relative investment performance are expected to contribute to continued growth in allocations over the coming years, the survey noted.
“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,” said Mark Rudovic, principal and head of real assets at Hodes Weill, in a release issued along with the survey. “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 survey comprised the views of 102 institutions from 20 countries representing aggregate AUM of more than $8.2 trillion and portfolio investments in infrastructure totaling approximately $350 billion.
Hodes Weill & Associates is an advisory firm focused on real estate, infrastructure and other real assets.
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, according to the release.
