PM700 investors display growing hunger for infrastructure assets

Institutional investors are increasingly confident about infrastructure equity and infrastructure debt as private market asset classes and now believe they will offer superior return prospects than private equity and private debt, respectively.  

In September, IFM Investors asked respondents to our Private Markets 700 survey to provide their latest views to four questions about private markets investments. The original study had been conducted in April, during a period of notable market volatility amid a dramatic upscaling in international tariffs. This ‘sense check’ was conducted during a relatively less tumultuous period and gained responses from 350 investors.  

One of the most notable takeaways is that Private Markets 700 respondents are becoming increasingly confident about the potential returns of infrastructure equity and infrastructure debt. They now believe each investment class will respectively outstrip those offered by private equity and private debt.  

Consequently, respondents say they may increase their average allocations to infrastructure equity and infrastructure debt more aggressively than before. 

A large percentage of the participants continue to regard private market investments as important to manage portfolio risks and raise financial returns. However, they are also increasingly interested in the investments to gain direct influence in the energy transition.  

The strengthening of allocation and return expectations to infrastructure assets underlines how investor sentiment can evolve amid geopolitical and economic volatility. We look forward to assessing how enduring these views on private markets are in future surveys. 

Infrastructure allocations on the rise

Private Markets 700 respondents have increasing confidence in infrastructure equity and say their mean allocation to the asset class is 7.48%, compared to 6.11% in April. Similarly, their allocation to infrastructure debt stands at 4.07%, up from 3.44%.  

This stands in contrast to private equity and private debt, which recorded slight drops in respondents’ mean allocations (14.07% vs. 13.53%, and 6.73% vs. 6.43%, respectively).  

In addition, most investors are building exposure to infrastructure assets. Fifty-seven percent of respondents report having done so over the past 12 months, a slight uptick on 49% in April. 

Infrastructure's growing appeal

^{Source: PM700 update}

Infrastructure return expectations outpace rival assets

Respondents continue to anticipate more returns from infrastructure equity. Indeed, their expectations for the average rate of return have strengthened to 13.76%, from 13.4% before. Similarly, the respondents predict a 9.78% return for infrastructure debt, versus 9.59%.  

Investment return expectations at those levels would suggest respondents have a rising interest in higher-risk infrastructure strategies.  

Return expectations on the rise

_{Source: PM700 update}

Their confidence in infrastructure contrasts with a dimming in expectations for average private equity and private debt rates of return. Respondents’ anticipated returns for private equity have slipped from 13.65% in April to 13.35%, while expectations for private debt returns moved from 9.85% to 9.5%.  

Energy transition helps underpin private market appreciation

Investors remain largely consistent for why they make private market investments. Managing portfolio risk remains the most popular in their latest answer (46%), followed by increasing portfolio financial returns (43%).  

However, respondents appear increasingly keen to directly influence the energy transition; 42% state this as a key reason for making private markets allocations, up from 35% before.  

Investor convictions could benefit infrastructure experts

The latest responses from institutional investors underscore their ongoing interest in private market investments and especially infrastructure allocations. They continue to expect private markets to play multiple roles in their portfolios, including risk mitigation, portfolio diversification and an outright means of securing better returns.  

Within private markets, their growing belief that infrastructure equity investments may perform better than private equity suggests underlines their growing confidence in the resilience and appeal of these assets. Meanwhile, a slight weakening in investor confidence for private equity and private debt suggests some concern about their performance amid economic headwinds and geopolitical volatility.  

Above all, the investor responses underline that the public sector has an opportunity to gain more private capital inflows into infrastructure projects, provided deal supply improves. It also offers an asset-raising opportunity for asset managers that can successfully invest in infrastructure assets over the long term.