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Sovereign Wealth Funds Investing in Infrastructure

Sovereign Wealth Funds Investing in Infrastructure Using extracts from the 2016 Preqin Sovereign Wealth Fund Review and data from Preqin’s Infrastructure Online, Joe McGee and Selina Sy examine these investors’ plans and preferences concerning infrastructure investments.

7 6.31 6

3.95

4 3.22

3.07 3

Hydrocarbon

2

Total Assets under Management

1

Mar-16

Mar-15

Dec-13

Dec-12

Dec-11

Dec-10

Dec-09

0

Source: 2016 Preqin Sovereign Wealth Fund Review

A further 7% of sovereign wealth funds are considering investing in infrastructure, suggesting that the asset class could see continued growth in the years ahead. This interest has also been noted by fund managers: among those surveyed for the 2016 Preqin Global Infrastructure Report, 48% reported increased interest from sovereign wealth funds over the previous year (Fig.

3). Nevertheless, there remain some funds that have mandates which restrict allocations to alternative investments such as infrastructure; among sovereign wealth funds not currently investing in infrastructure, 73% do not currently allocate to any alternative asset classes and only invest in more liquid instruments such as fixed income and equities.

Fig. 3: Fund Managers’ Views on Whether They Are Seeing More Appetite for Infrastructure from Different Types of Investor 100%

33% 31% 32%

35%

30%

2016

24%

20% 10% Hedge Funds

Natural Resources*

Infrastructure

Real Estate

Private Debt*

Private Equity

Fixed Income

Public Equities

N/A

76%

71%

40%

67%

30% 20%

More Appetite for Infrastructure No Change

50%

30%

40%

48%

73%

Less Appetite for Infrastructure

52%

10% 0%

N/A

0%

21%

3%

3%

5%

2%

2%

7% Retail Investor

40%

2015

67%

22%

Endowment Plan

51% 47%

50%

60%

57%

25%

48%

Foundation

62% 60% 62% 59% 57% 54% 47%

55%

60%

70%

52%

Family Office

70%

28%

80%

Sovereign Wealth Fund

2014

90%

Private Sector Pension Fund

82%

Insurance Company

82% 81% 80%

Public Pension Fund

86% 86%

Proportion of Respondents

Proportion of Sovereign Wealth Funds

Non-Commodity

3.59

100%

80%

Other Commodity

4.62

Fig. 2: Sovereign Wealth Funds Investing in Each Asset Class, 2014 - 2016

90%

6.51

5.38

5

Dec-08

The long-term stable yields offered by infrastructure investments can help explain their appeal to sovereign wealth funds and their ability to withstand illiquidity, making them particularly suited to the asset class. In addition, many funds have an explicit mandate to help develop local economies and infrastructure investment is often seen as an effective means of doing so. The proportion of sovereign w