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Institutional investors eye bigger infrastructure allocations, with focus on emerging markets

A worker looks down into the foundation hole for the new Chicago Spire apartment building under construction in Chicago, Illinois, U.S., on Friday, Jan. 18, 2008. Garrett Kelleher’s timing couldn’t be worse. The little-known Irish developer is peddling 1,194 apartments in the Chicago Spire, billed as the world’s tallest residential building, for as much as $40 million just as the U.S. housing market is mired in its deepest recession in 16 years and residential properties go unsold even in the strong New York area market. Photographer: Tim Boyle/Bloomberg News

Institutional investors want to increase their allocations to infrastructure over the medium term, with an emphasis on emerging market infrastructure, shows a new survey by the Global Infrastructure Hub.

The survey found the most optimism about the pipeline of projects in emerging markets, with 85% of survey respondents believing it will grow.

The survey, of 186 investors representing $7 trillion in assets, found 90.3% of respondents want to increase their allocations to infrastructure over the next three to five years.

Emerging market infrastructure has already attracted investment from 38% of respondents, and 81.8% of those invested want to up their allocations to the region. The top five emerging markets for infrastructure investment are Indonesia, India, China, Mexico and Brazil, said a report on the survey.

The mean equity bid-ask spread in Organization for Economic Cooperation and Development infrastructure markets is about 200 basis points, said the report, while in emerging markets countries that spread reaches 270 basis points.

Investors also said they needed more asset-level data from governments to help inform their allocations to infrastructure.

The Global Infrastructure Hub estimates that governments will need to spend more than $97 trillion across the world by 2040 to provide adequate infrastructure to expanding populations. "Private finance will play an important role in funding that much-needed infrastructure," said Chris Heathcote, CEO at Global Infrastructure Hub, in a statement accompanying the report. "This survey confirms there is a growing appetite amongst the most prominent global investors for investment in infrastructure. This is a message to governments across the globe — prepare a robust pipeline of viable projects to attract that private finance."

Mr. Heathcote said there is also an opportunity for governments to explain to investors their vision and get them on board when it comes to national infrastructure plans.

The "Investor Perceptions of Infrastructure 2017" report was undertaken by the Global Infrastructure Hub and EDHEC Infrastructure Institute-Singapore.