EUROPE 鈥� Institutional investors can 鈥減lay a bigger role鈥� in financing infrastructure, but Inderst Advisory has concluded in a report commissioned by the European Investment Bank (EIB) that banks and other traditional channels of financing will need to be kept up as well.
According to the , which compiles figures on institutional infrastructure investments worldwide, only around 1% of institutional assets, or $600bn-700bn (鈧�441bn-514bn), globally are currently invested in infrastructure, not counting equity exposure via shares in infrastructure-linked companies.
George Inderst 鈥� author of the study, entitled 鈥淧rivate Infrastructure Finance and Investment in Europe鈥�, and chief executive at Inderst Advisory 鈥� said: 鈥淭he analysis shows institutional investors can play a bigger role as a source of finance, but expectations should be realistic.
鈥淓ven a strong shift in the average asset allocation from around 1% to 3-5% over 10 years could contribute only 5-10% of the estimated infrastructure requirements.鈥�
He said 鈥渢raditional forces鈥� of public and corporate capital expenditure needed to 鈥渒eep working, as does bank lending, especially in Europe鈥�.
鈥淧ension fund investment in infrastructure has been growing strongly in recent years but is still small compared with overall assets of $30trn,鈥� Inderst said.
He added that pension funds鈥� average exposure to infrastructure was skewed mainly towards Canada and Australia, where allocations can be as high as 5%, while in Europe exposure is often well below the 1% average.
Inderst estimated that the 鈥済eneral de-risking trend鈥� in institutional investor portfolios had led to a reduction of equity exposure from 60% in 2001 and 2006 to 47% in 2012, while at the same time building an exposure to alternative asset classes such as infrastructure.
鈥淭his implies a reduction of roughly $200bn of equity capital over this short period,鈥� he said.
The trend might be furthered by regulation.
鈥淭here are concerns fair value and risk-based regulations for institutional investors could lead to further de-risking and pro-cyclicality, and may also be detrimental to substantially increasing infrastructure and other long-term investment strategies,鈥� he said.
