Investment consulting firm Mercer expects institutional investors to lift their allocation to direct infrastructure assets in the coming years as funds continue to grow and markets remain volatile.
"This where the institutional space will go," Mercer partner Karen Chester told Investor Weekly.
The Australian superannuation fund industry currently has $60 billion invested in domestic unlisted infrastructure and Chester said this was set to double by 2023.
Taking into account the average level of gearing in these projects boosts the figures further.
"Given these figures represent equity only, they would infer investment in infrastructure of $160 billion increasing to $300 billion by 2023," Chester said.
Chester joined Mercer in February from Access Capital Advisers to lead the direct infrastructure investment team in Australia.
Mercer now offers direct infrastructure investment advice services, including research, portfolio modelling, transaction analysis and performance reporting.
"Mercer had the capabilities in-house, but they needed someone to pull the team together," Chester said.
"We are talking to clients and looking to do portfolio reviews. Hopefully by early 2012 we will have some investments on the go, but it is a six-to-eight-month process to go from not direct to direct."
Direct investment in infrastructure made sense for superannuation funds that had more than $4 billion in assets under management and a reasonable allocation to the asset class, she said.
Apart from the benefits of the unlisted space, such as low correlation to equity markets and inflation hedge, direct offers greater control in portfolio construction, which allows a fund to build in a reasonable amount of liquidity.
"Direct infrastructure is an illiquid asset class, but if you structure it well, you can get out of assets in two to three months," Chester said.
It also allows funds to have better control over management fees and increases governance because they have complete transparency.
At the beginning of this month, Mercer also hired Toby Buscombe, who will join from Access Capital's European infrastructure group.
Including Buscombe, the infrastructure team now has 19 members globally.
"We will expand in time as we get more clients and more funds to invest," Chester said.
