Asset owners eye infrastructure to fill yield gap
Today’s new investment normal looks like heralding a new era for the role of infrastructure in institutional portfolios.
In short, asset owners are grappling with the impact of muted interest rates, along with continued short-term volatility and unpredictability in markets. As a result, the desire for robust assets that offer diversification, reliable income and uncorrelated returns across sectors, geographies and lifecycles suggests infrastructure exposure will grow.
This is based on the views of senior executives at leading insurance companies, pension funds, government entities, sovereign wealth funds and other investors – with collective assets under management (AUM) of well over $3 trillion.
Key take-aways from this poll by AsianInvestor and QIC, run during October and November 2020 across Hong Kong, Australia, Japan, Singapore, South Korea, Taiwan, Thailand, the Philippines and Malaysia, include:
- There is relatively low exposure within the region to unlisted infrastructure, with an allocation equivalent to less than 2% of total AUM for 59% of respondents
- Yet in the wake of Covid-19, just under half of asset owners have either increased their allocation to infrastructure, or plan to do so at some point
- The desire for new sources of income plus much-needed portfolio diversification are the two main drivers for investing in infrastructure
- Nearly 60% of respondents prefer to gain exposure to unlisted infrastructure assets via pooled funds – with manager performance the priority when they select a pooled vehicle
- Sustainability linked energy and renewables are the assets of choice for 2021
- Insurers and pension funds are most concerned about valuations of infrastructure assets
- Assessing an external manager’s track record, along with an experienced and stable team, are the top selection criteria when outsourcing infrastructure mandates