Institutions Underinvested in Infrastructure Vs. Target Allocations: Survey
Institutions are underinvested in infrastructure by an average of 98 basis points compared with target allocations. The Americas region is an even bigger laggard, currently 152 basis points underinvested.
These are just some of the finding from the inaugural Institutional Infrastructure Allocations Monitor conducted by Hodes Weill & Associates and Cornell University’s Program in Infrastructure Policy.
Amid the hightened market uncertainty over the past few quarters, institutions have lagged their infrastructure target allocations, with 60% of respondents under-allocated.
Even with the signing of the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, world governments have struggled to close “an increasingly widening infrastructure investment gap,” the survey noted.
Yet sentiment towards private infrastructure remains relatively strong and allocations are expected to rise in the coming years. Infrastructure portfolios generated an average year-over-year return of 14.4% in 2022, up sharply from 6.9% in 2021.
Investors are looking for exposure to higher, uncorrelated returns in the space to hedge against market volatilty. Institutions are seeking higher-risk core-plus and value-add infrastructure strategies, while higher rates has deterred investments in super-core and core strategies.
“Infrastructure remains a particularly favored asset class for institutional investors, and the inflationary risks affecting other asset classes drive capital to infrastructure as a safe-haven, as asset owners are often able to pass through rising costs, demonstrating resilience in the face of a slowing economy,” said Mark Rudovic, Principal and Head of Real Assets at Hodes Weil.
Within the asset class, digital infrastructure, and renewable energy and new energy transition were top of mind for institutions, with 40% of respondents indicated they expected to increase allocations.
63 institutions from 16 countries participated in the survey, representing aggregate managed assets above $6.8 trillion and portfolio investments in infrastructure totaling approximately $325 billion.