Infrastructure investments are in demand
Worldwide, there is an enormous need for investment in transportation routes, energy plants, communications networks, hospitals, etc. According to expert estimates, more than 41 trillion U.S. dollars will flow into the infrastructure sector by 2030. States are increasingly withdrawing from financing, not least because of the sovereign debt crisis, and private investment or public-private partnerships are in demand. The asset class is increasingly attracting the attention of institutional investors because it provides secure, constant cash flows that are largely independent of economic cycles.
With infrastructure investments, investors can achieve attractive returns compared to the risk. The portfolio risk can be reduced by up to 13.6 percent by adding infrastructure, according to a study by the International Real Estate Business School (IREBS) at the University of Regensburg, which we supported. Approximately 800 North American infrastructure transactions were analyzed. Another study on the situation in Europe is in progress.
Due to the high investment volumes, mainly institutional investors such as pension funds, insurance companies, foundations and banks. Canadian and Australian pension funds were the first to recognize the attractiveness of the asset class and are already investing up to ten percent of their funds in infrastructure projects. Institutional investors in Europe are catching up, and we can feel this in our current infrastructure fund of funds APPIA — Global Infrastructure Portfolio. Lead investors here are a German insurance company and the pension fund of a Dax group. Demand was surprisingly high, even for us; that’s why we increased the fund’s target from 200 to 300 million euros.
In addition to an attractive total return that an investor can expect from the illiquidity premium, among other factors, many infrastructure assets generate current income. These are available to investors as dividend payouts and thus provide a contribution to the coverage of current payout obligations (for example, of a pension fund).
Current income on regulated assets is usually indexed for inflation and therefore rises with the general price level. The investments also offer protection against inflation due to their “real estate” character. Last but not least, infrastructure has a low or negative correlation with conventional asset classes, which can lead to very beneficial effects in a multi-asset portfolio.