IFM Investors is calling infrastructure the “new portfolio cornerstone” as interest in the asset class ramps up around the globe.
Managing $108.8 billion for its 686 institutional investors, including its 17 Australian industry super owners, IFM’s infrastructure portfolio offers exposure to essential infrastructure assets in the Organisation for Economic Cooperation and Development (OECD) countries.
Key investments include a 70.21 per cent stake in the Indiana Toll Road in the US, a 39 per cent stake in Turkey’s largest container port and following the removal of Sydney Airport from the ASX in 2022, it acquired a 32.9 per cent stake in the firm across two of its funds.
While infrastructure has essentially been discharged of its “alternatives” title in Australian financial markets, according to IFM, the firm urged investors in the UK, the US, Europe, and Asia to carve out infrastructure from alternative allocations and establish it as a “foundational” facet of their portfolios.
“The resilience of infrastructure returns has been in the spotlight due to recent market volatility, and investors around the world are starting to catch on to what IFM’s known for almost 30 years – infrastructure should be treated as a portfolio cornerstone,” commented global head of infrastructure, Kyle Mangini.
Globally, private pension funds remain underinvested in infrastructure relative to their targets, signalling a significant wave of potential new investments to come.
However, IFM noted that some regions have been quick to follow suit, with asset owners across South Korea and the US gradually building their exposure over the last decade.
Namely, Korea’s National Pension Service disclosed US$31.2 billion to infrastructure as of September 2023, equating to a quarter of its alternatives portfolio and 4.2 per cent of its overall assets.
On the other side of the globe, the US has also committed significant sums to the asset class, some US$134 billion since 2011. Canada, however, trumps its peers, with Canadian funds said to have an average allocation of 10.5 per cent to infrastructure.
IFM posited that US pension investors and those wishing to grow their exposure to the US will also see an increase in infrastructure opportunities in coming years as the impact of the Inflation Reduction Act plays out. With half the act’s $739 billion in funding allocated towards clean energy and climate investments, it’s believed to present a significant growth opportunity.
As such, the firm said that the global energy transition will “arguably be the most significant structural change undertaken since the early industrial revolution”, with over US$100 trillion needing to be deployed over the next three decades.
“Much of which will take the shape of infrastructure equity funding for renewable energy and climate change adaptation methods,” the report said.
Likewise, it was only in November that Rest announced its commitment to invest $1 billion in renewable and clean energy infrastructure manager Quinbrook Infrastructure Partners.
At the time, Rest deemed the investment a commitment to “next-generation” infrastructure.
“We’re at a convergence point where the asset class is starting to become mainstream, with inflows and deal competition ramping up, and a massive opportunity set emerging through the global energy transition. It’s a really exciting time for the sector,” Mangini said of IFM’s findings.
“We think with the current market conditions and investment opportunities, the first-mover advantage that led to strong returns for Australian and Canadian investors 30 years ago is back and available for global investors today,” he concluded.
