Worldwide, only family offices and foundations are at or above their infrastructure target allocations with an average of 4.24% of their entire portfolios invested and a 4.09% average target allocation to the asset class, according to Preqin data prepared for P&I. Endowments have an average of 3.89% invested compared with a 7.9% average target allocation. Sovereign wealth funds have 5.87% invested on average, more than a percentage point lower than their 7.09% average target allocation. Private pension funds have an average of 3.23% invested vs. a 4.96% target; public pension plans have an average 2.79% invested and a 4.53% average target.
Investors' search for yield in the current environment is leading to the increase in infrastructure commitments and investments, said Brett Himbury, CEO of Industry Funds Management, Melbourne, Australia. In January, IFM closed on US$2 billion from North American investors for its open-end Global Infrastructure Fund.
Currently, half of the fund is invested in the U.S. and half in Europe, he said.
Pension funds that made commitments to the fund include the Florida State Board of Administration, the $10.8 billion Maine Public Employees Retirement System, Portland, and $55.5 billion Virginia Retirement System, Richmond.
Part of the appeal of the asset class is that core infrastructure can offer stable, long-term returns, with an expected net return of 10%, Mr. Himbury said.
“We've seen many large commitments to infrastructure in the last six months,” said Mark Weisdorf, a managing director and head of the Organization for Economic Co-operation and Development infrastructure equity group at J.P. Morgan Asset Management in New York. “We are seeing a very broad continuing interest and commitment to the space.”
In some cases, investors are making commitments in separate accounts, Mr. Weisdorf said.
In the next two to five years, Mr. Weisdorf predicted that U.S. investors' target infrastructure allocations will be comparable to the 6% to 7% real estate target allocations.
European, Canadian and Australian investors are already way ahead of U.S. investors' target allocations to infrastructure. In March, the Department for Communities and Local Government in the U.K. doubled the limit to 30% for local government pension funds to invest in infrastructure funds.
Australia's superannuation funds have been investing in infrastructure for 15 to 20 years, said Anne Valentine Andrews, managing director, chief operating officer and co-head of infrastructure in the New York office of Morgan Stanley Investment Management.
The average superannuation fund's target allocation to infrastructure is 8.66%, according to Preqin. However, Ms. Andrews notes some Australian and Canadian plans have infrastructure targets of 10% to 15%.
“While America is certainly in the catch-up position, U.S. plans are making up ground quickly,” Ms. Andrews said. Many U.S. plans now have a 2% or 3% target allocation.