The global infrastructure sector, which is expected to see its assets under management (AUM) hit USD$1.87 trillion ($2.59 trillion) by 2026, is also well placed to advance private capital’s role in delivering social outcomes and transition to green energy.
Financial data provider, Preqin’s ‘2022 Global Infrastructure Report’, found infrastructure performance rebounded, with a 13.9% IRR (internal rate of return) in the year to March 2021 making up for ground lost in 2020 when one-year returns were -0.1%. This was after performing poorly in the first half of 2020 as demand for assets such as airports, railways, ports, and roads experienced unprecedented fell.
Following this, 91% of investors reported that performance of this asset class met or exceeded their expectations over the past 12 months and early half (47%) of investors said they planned to increase their long-term allocation to the asset class, with just 7% intending to reduce it.
Additionally, infrastructure had a crucial role to play in meeting environmental, social, and governance (ESG) targets given that infrastructure fund managers had the highest average fund manager ESG transparency metrics (31%) across alternatives and they provided more comprehensive reporting of their ESG policies compared to other asset classes.
As far as the regions were concerned, Europe led in renewable energy investment, with the rise in infrastructure fundraising focusing on Europe is tracking hand-in-hand with renewables-focused fundraising.
At the same time, the prospects for longer term growth of renewable energy in North America remained less certain. However, according to the report, the US$1.75 trillion Infrastructure Investment and Jobs Act there could provide some strong incentives to drive investment in renewables and spark take-up in the sector.
Alex Murray, vice president, research insights, at Preqin, said: “Infrastructure has proved its investment thesis through a period of unprecedented economic challenges. Managers, alongside investors, are increasingly comfortable exploring higher-risk strategies that are essential to delivering the innovation required to transition to greener energy generation.
“As ESG factors become ever-more important, the role of infrastructure services in promoting social outcomes besides environmental ones will aid managers in capturing the imaginations of investors in meeting their ESG ambitions.”