Larry Fink, CEO of Blackrock, the world's largest asset manager, has described this movement as an "infrastructure revolution," according to The Economist. Earlier this year, Blackrock acquired Global Infrastructure Partners (GIP), the third-largest manager of infrastructure worldwide, for USD 12.5 billion.
Recently, the Australian infrastructure fund manager Macquarie announced it had raised EUR 8 billion for its European fund, the largest ever aimed at investments in European infrastructure.
The financial characteristics of infrastructure have, of course, been critical in attracting investors. Additionally, the opportunity to contribute to energy transition and energy security is important for many investors.
– Infrastructure benefits from strong underlying trends, which boosts interest in these types of investments. In recent years, we've seen massive investments from pension funds worldwide. Today, infrastructure is a key component of many investors' portfolios, says Jo W. Gullhaugen, head of infrastructure investments at Storebrand.
Still, there remains a substantial need for investments in the coming years. Existing infrastructure must be upgraded while the energy transition requires new investments.
In Europe alone, McKinsey estimates that the investments needed to achieve net-zero greenhouse gas emissions are USD 28 trillion, with up to half of these investments suitable for infrastructure investors such as Storebrand. (McKinsey, Europe path to net zero, 2020)
– Comparing this to the total assets under management in infrastructure funds globally, which has just surpassed USD 1 trillion, illustrates the enormous task we face, says Gullhaugen.
Attractive portfolio characteristics
Infrastructure encompasses various types of assets - from railway lines, fiber networks, and data centers, to solar parks and wind farms.
The significant growth in these investments is expected to continue. A recent survey by Campbell Lutyens shows that most institutional investors globally (57%) plan to increase their exposure to infrastructure, while few intend to reduce it. (Campbell Lutyens Infrastructure Market Report, 2H 2023)
The key financial characteristics of infrastructure investments include long stable cash flows, low correlation with other asset classes, and cash flows linked to inflation. In addition, infrastructure investments are also favourable for life insurance companies and pension funds under the European solvency regulations.
– The largest Nordic institutional investors have included infrastructure in their portfolios for some time, and now more investors are following suit. We believe that any long-term investment portfolio should have exposure to the characteristics infrastructure provides," says Gullhaugen.
Energy security increasingly important
When Blackrock acquired GIP earlier this year, Larry Fink highlighted the need for more public-private partnerships. Both the USA and several European countries struggle with national debt and cannot afford to finance critical infrastructure projects.
Jo Gullhaugen also points to trends like digitalisation, the energy transition, and energy security as drivers for increased investment needs.
– Russia’s invasion of Ukraine has heightened the attention of many governments on the importance of energy security by establishing local sources of energy. Alongside Norway’s Government Pension Fund (“the Norwegian oil fund”) and Allianz, we are participating in building Germany's largest offshore wind farm, which will supply energy to 1.2 million households in Germany. Here, energy security, climate, and strong financial characteristics go hand in hand, says the Storebrand manager.
"Impact" is a term often mentioned in connection with infrastructure, whether it relates to transport, renewable energy, or other investments.
– Many investors are keen on ensuring that investments contribute positively. Two key investment themes in our infrastructure fund are renewable energy production and decarbonisation of the transport sector. However, it's equally important that infrastructure provides strong financial characteristics. It's not about sacrificing returns to make a difference. Investors can have their cake and eat it too.
New fund under establishment
Storebrand Asset Management closed its first infrastructure fund – Storebrand Infrastructure Fund (SIF) SICAV RAIF – in 2022, with managed capital of about USD 1 billion. Storebrand's own pension fund is the largest investor in the fund.
– Our clients are in the same boat as our life insurance company, which makes all its infrastructure investments through this fund, says Gullhaugen.
SIF invests directly in infrastructure that contributes to energy transition, decarbonisation, and digitalisation. Currently, just over half the capital is invested in seven direct investments across various sectors.
– SIF has invested in onshore and offshore wind power, solar parks with battery storage capabilities, electric trains, and district heating. We have several interesting investment opportunities in our pipeline, and we are experiencing great interest in these types of investments among our clients. Therefore, we are in the process of establishing a new fund with a similar mandate. Here too, Storebrand's own pension portfolios will be a major investor, concludes Gullhaugen.
