Last updated: 07:00 / Thursday, 28 January 2021
According to Cerulli Associates

Investors’ Interest in U.S. Private Infrastructure Will Persist

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  • With returns generally lower and less volatile, advocates perceive real assets as safe and defensive and less correlated with other asset classes
  • They are particularly attractive to larger investors that seek to put substantial capital to work in long-life assets that match their long-term liabilities
  • Investors’ appetite for ESG strategies will continue to drive clean energy investments, while the pandemic has accelerated global demand for digital infrastructure

Although the pandemic is likely to negatively impact 2020-year-end fundraising, the attractive attributes that private infrastructure offers investors in the U.S. will drive assets under management to higher levels and new strategies will proliferate, according to one of the latest reports by Cerulli Associates "Cerulli Edge - U.S. Asset and Wealth Management Edition".

The document highlights that the distinctive characteristics of infrastructure assets result in a unique risk and return profile: "With returns generally lower and less volatile, advocates perceive real assets as safe and defensive and less correlated with other asset classes". Also, their long asset lives and often large investment sizes make them particularly attractive to larger investors, such as insurance general accounts, pensions, and sovereign wealth funds (SWFs) that "seek to put substantial capital to work in long-life assets that match their long-term liabilities".

The research reveals that digital infrastructure (fiber networks, telecommunication towers, and data centers) was one of the fastest-growing segments of infrastructure investment in 2020. By prompting a dramatic shift to work- and school-at-home, the pandemic highlighted the need for connectivity. "Investment is required for both upgrading aging data infrastructure and installing new digital assets, particularly in developing countries experiencing rapidly growing demand for connectivity", Cerulli adds.

The sustainability driver

The demand for sustainable investments is also a key driver shaping infrastructure investing. Specifically, clean energy, water, and wastewater assets have become increasingly attractive to a growing pool of investors seeking sustainable or socially responsible investments. The report points out that often these investors, such as pension funds, are under pressure to meet climate change or sustainability goals, but other investors, including high-net-worth individuals and SWFs, have a growing appetite for investments that make a meaningful impact and also generate a competitive return.

"Additionally, the growing commitment by fund managers to make investments that meet environmental, social, and governance (ESG) factors contributes to the escalating supply and demand for assets in the renewable energy and social housing space", Cerulli says.

All in all, going forward, the large global, publicly traded alternative asset managers with multi-strategy platforms will be advantaged to source investments, launch products, and attract capital from investors worldwide. Investors’ appetite for sustainability and ESG strategies will continue to drive renewable energy investments. "Similarly, remote work and e-commerce trends that COVID-19 accelerated have stimulated global demand for digital infrastructure that is likely to continue", the research concludes.

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