A global pandemic, inflation and supply chain issues continuing into 2022 are expected to point more investments into real assets, but from there industry experts say the crystal ball gets a bit cloudy.
In infrastructure, investors are expected to continue moving into core strategies, viewing infrastructure as a replacement for low-yielding fixed income and as a buffer for volatility caused by the pandemic, industry insiders say. Thirty core infrastructure funds worldwide raised a total of $15.6 billion in 2021, compared with 13 value-added infrastructure funds with a combined $36.6 billion and eight opportunistic infrastructure funds with $1.8 billion, Preqin data shows. Preqin has forecasted that infrastructure managers' assets under management will grow by a compound annual growth rate of 4.5% through 2025.
"Even three years ago, 70% of infrastructure money raised went to value-add" strategies, said Gordon Bajnai, a London-based partner and head of global infrastructure at placement agent Campbell Lutyens & Co. Ltd. Core and core-plus combined took 60% of world infrastructure fundraising in 2021, he said. "That's quite a switch."
"Only part of that is COVID-induced," Mr. Bajnai said. "Fixed income is down to negative or very low yield."
Institutional investors have a "massive part of their portfolios," he said. "You need to find something else to replace that return."
Seventy-five percent of the 50 limited partners surveyed by Campbell Lutyens in September and October indicated they plan to increase their infrastructure allocations. Fifty percent of respondents stated they planned to increase their allocations to core infrastructure, attracted by its resilience and yield, the survey showed.
In real estate, the reverse trend is anticipated to continue in 2022. Managers that had concentrated on investing in core — the safest properties — are starting to add riskier, value-added strategies, a trend expected to continue in 2022, industry insiders say. Some 121 value-added real estate funds worldwide raised a combined $53.1 billion, compared to 68 core real estate funds globally that raised a total of $15.6 billion as of Dec. 22, Preqin data shows.
Investors are still pouring capital into real estate as a yield substitute they find more attractive than bonds, said Nancy Lashine, New York-based founder and managing partner of Park Madison Partners LLC, a boutique real asset private equity placement firm.
With low capitalization rates — a measure of the rate of return properties are expected to produce — managers of open-end funds that invest mostly in core properties are switching to value-added, Ms. Lashine said. With the possibility of rising interest rates in 2022, these managers don't want to continue investing in core because the lower the capitalization rate, the more impact rising interest rates will have.