BNY Mellon: Infrastructure investment boost expected
18 June 2018 London
Image: Shutterstock
Some 70 percent of global public sector investors plan to increase their infrastructure investments over the next 12 to 24 months, according to a new survey from BNY Mellon and the Official Monetary and Financial Institutions Forum (OMFIF).
BNY Mellon found an additional $334billion is estimated to be investment globally in real estate, while a further $130 billion is expected to be invested in infrastructure over the next two years.
The planned increase in infrastructure is the highest figure for all asset classes, but from a relatively low base.
Real estate is the next most popular asset class, according to the survey, with 32 percent of respondents planning to increase their allocation.
This could amount to an additional $334 billion investment in real estate and $130 billion in infrastructure over the next two years, BNY Mellon found.
The current sovereign fund portfolio contains, on average, 8 percent real estate and 11 percent in infrastructure, against 9.4 percent and 2 percent, respectively, for pension funds.
Public pension funds are planning the highest increase in infrastructure investment over the next two years.
The findings, reported in Real Momentum: Global Public Investors and the Real Assets Market, are based on a survey of institutions representing more than 20 percent of the $21.5 trillion held by sovereign and pension funds globally.
Some 82 percent of investors said that they do not plan to exit their real investments as monetary policy normalises and yields rise on traditional assets.
However, difficulties highlighted by respondents, including a lack of suitable projects and high costs associated with investment, present obstacles to this growth, BNY Mellon said.
Some investors are moving into more niche assets and new locations in response to rising valuations on core assets.
Hani Kablawi, CEO of global asset servicing and chairman of Europe, the Middle East and Africa at BNY Mellon, said: “The appeal of real assets to public investors stem from their low correlation to stocks and other investments, combined with yields that have exceeded most traditional assets over five, 10- and 20-year horizons.”
He added: “Our survey suggests that sovereign funds and public pension funds remain committed to real assets for the foreseeable future, with some respondents indicating a market downturn would create an opportunity to increase their holdings.”
David Marsh, OMFIF chairman, commented: “The survey points to inescapable interest in real investments by this very important group of public investors. In view of these institutions’ duties of stewardship and accountability towards parliaments, taxpayers and pensioners, we would favour efforts to harmonise regulatory coverage of this asset class, optimise valuation methodology and where possible add liquidity to the sector so that markets can perform their task efficiently and effectively.”
Alan Flanagan, managing director, global head of private markets at BNY Mellon alternative investment services, said: “Investment managers have to adapt to a world where the investor is driving the agenda and competition for allocations is forcing price compression. All investors—both public and institutional—are demanding more for less.”
BNY Mellon found an additional $334billion is estimated to be investment globally in real estate, while a further $130 billion is expected to be invested in infrastructure over the next two years.
The planned increase in infrastructure is the highest figure for all asset classes, but from a relatively low base.
Real estate is the next most popular asset class, according to the survey, with 32 percent of respondents planning to increase their allocation.
This could amount to an additional $334 billion investment in real estate and $130 billion in infrastructure over the next two years, BNY Mellon found.
The current sovereign fund portfolio contains, on average, 8 percent real estate and 11 percent in infrastructure, against 9.4 percent and 2 percent, respectively, for pension funds.
Public pension funds are planning the highest increase in infrastructure investment over the next two years.
The findings, reported in Real Momentum: Global Public Investors and the Real Assets Market, are based on a survey of institutions representing more than 20 percent of the $21.5 trillion held by sovereign and pension funds globally.
Some 82 percent of investors said that they do not plan to exit their real investments as monetary policy normalises and yields rise on traditional assets.
However, difficulties highlighted by respondents, including a lack of suitable projects and high costs associated with investment, present obstacles to this growth, BNY Mellon said.
Some investors are moving into more niche assets and new locations in response to rising valuations on core assets.
Hani Kablawi, CEO of global asset servicing and chairman of Europe, the Middle East and Africa at BNY Mellon, said: “The appeal of real assets to public investors stem from their low correlation to stocks and other investments, combined with yields that have exceeded most traditional assets over five, 10- and 20-year horizons.”
He added: “Our survey suggests that sovereign funds and public pension funds remain committed to real assets for the foreseeable future, with some respondents indicating a market downturn would create an opportunity to increase their holdings.”
David Marsh, OMFIF chairman, commented: “The survey points to inescapable interest in real investments by this very important group of public investors. In view of these institutions’ duties of stewardship and accountability towards parliaments, taxpayers and pensioners, we would favour efforts to harmonise regulatory coverage of this asset class, optimise valuation methodology and where possible add liquidity to the sector so that markets can perform their task efficiently and effectively.”
Alan Flanagan, managing director, global head of private markets at BNY Mellon alternative investment services, said: “Investment managers have to adapt to a world where the investor is driving the agenda and competition for allocations is forcing price compression. All investors—both public and institutional—are demanding more for less.”
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