Gap Narrowing Between Infrastructure Investments and Allocation Targets

In 2023, institutional investors stayed on the sidelines when it came to investing in infrastructure; however, there has been a resurgence of interest in the asset class, per a survey of investors titled the “2024 Infrastructure Allocations Monitor” from Hodes Weill & Associates and Cornell University’s Program in Infrastructure Policy.

Approximately 102 institutional investors across 20 countries who collectively manage $8.2 trillion in assets and $350 billion in infrastructure assets were surveyed by Hodes Weill & Associates between February and May 2024. The participants included TIAA, the European Investment Fund, Oklahoma Teachers’ Retirement System, Sweden’s AP Fonden 7, among other pension funds, sovereign wealth funds, endowments and other allocators.

Approximately 35% of survey participants are pension funds, 23% are endowments and foundations, 16% are private pensions, 14% are insurance companies and 12% are sovereign wealth funds.

The survey found that asset allocators across the board are under-allocated to infrastructure, on average allocating 123 basis points below their targets. The average target allocation to infrastructure among those surveyed was 5.50%, up 42 bps from the prior year’s survey. While current investment into the asset class was approximately 4.27% of total portfolio assets; the survey notes that the gap between investments and targets continues to narrow.

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“As infrastructure matures in jurisdictions newer to the asset class, it is reasonable to expect that target allocations to keep climbing and will resemble the trajectory of those in jurisdictions at the forefront of infrastructure including Canada, Australia, and the Nordic Region,” the report states.

Of those surveyed, 45% of institutions have an allocation target for infrastructure of between 0% and 5%, 35% of those surveyed reported a target allocation between 5% and 10%, 16% said their target is between 10% and 15%, while 4% of institutional investors reported an infrastructure target of 15% or greater.

Target allocations varied by geography; the weighted average target allocation of investors in the America’s is 8.1%, EMEA investors had the lowest target allocation of 4.3%, while APAC investors had an average allocation target of 5.2%. Canadian investors by far have the highest target allocations to infrastructure; these institutions on average have a target of 12.6%.

Over the next 12 months, 79% of allocators plan to keep their target allocation the same, while 20% say they will increase their targets; only 1% of respondents say they plan to decrease their allocation to the asset class.

Among all infrastructure assets, demand among investors is highest for digital assets, as demand for data centers for artificial intelligence uses has increased. Approximately 85% of survey participants said they intend to invest in digital infrastructure assets, although down slightly from 87% in 2023.