The rise of infrastructure as an asset class
Arecent study by PricewaterhouseCoopers (PwC) suggests that close to $78tr will be spent on infrastructure across the world between 2014 and 2025. It projects that $9tr will be spent on projects in 2025 alone, which is more than double the $4tr spent in 2012.
This growth is occurring at the same time that long-term institutional investors are scratching their heads over where to put all of their $85tr in assets under management. In an uncertain, low-yield environment they are looking for stable alternatives to listed equity and bonds, but property and private equity don’t have the capacity to absorb the huge amounts of capital they want to allocate.
Is this a supply an d deman d mat ch made in heaven?
“Globally, there is an increase in demand for long-term capital, given the current fiscal positions and infrastructure needs in different economies,” says Mark van Wyk, head of infrastructure investing at Mergence Investment Managers. “At the same time, there is a potential increase in the supply of that capital.”
Already in certain parts of the world, most notably Canada, Australia and the UK, infrastructure is becoming regarded as its own asset class. Institutional investors are including it in balanced portfolios as it can provide reliable long-term cash f lows, with some degree of inflation protection.
“There is an increase in demand from institutional investors looking for alternative opportunities with different characteristics, especially given the market we are in and where traditional asset classes are trading,” Van Wyk says. “Asset managers have to ask whether they stay in the same risky asset allocations, or if