SWF and infrastructure investment seem to fit well together for so many reasons: long-term projects, long-term investors, huge amounts of capital, huge capital requirements, and so on. It is a surprise, then (at least to me), that it has taken so long for SWF infrastructure investment to gather momentum (Ashby Monk and colleagues have a paper explaining some of the challenges and potential solutions to these challenges).
An Arab Times article reports a recent study KFH-Research indicating that “despite the recent poor performance of subscriptions and money gathering, infrastructure funds are expected to attract more investors and to continue achieving reasonable growth; especially after the growing trend to spend funds on in infrastructure projects and the participation of the private sector in those projects.” Among these investors are SWFs. The report states that:
In recent years, sovereign wealth funds have also begun to play an increasingly important part in the infrastructure investor landscape, gaining significant exposure through both infrastructure funds and direct investments. Infrastructure assets appeal to sovereign wealth funds as they offer the potential for steady, inflation linked cash flows over long time periods. . . .The popular areas for infrastructure investments by sovereign wealth funds are Asia and Europe. Approximately 45% of sovereign wealth funds that invest in the asset class target opportunities in Asia, with the same proportion having a preference for Europe. In comparison, 42% seek infrastructure investments in North America, while MENA is favoured by 32%. The majority of the sovereign wealth funds investing in the MENA region are domestic investors such as Dubai International Capital and Abu Dhabi Investment Council, which have an emphasis on domestic development. In the last year there has been a marked increase in the number of sovereign wealth funds targeting global infrastructure investments. At present, 52% of the sovereign wealth funds investing in infrastructure target global investments, a significant increase on last year’s figure of 41%. This desire among sovereign wealth funds to acquire a globally diversified infrastructure portfolio suggests that whilst many of these investors historically gained exposure as a means of aiding development in their home nations, now more and more are seeking infrastructure assets for the value they can add to an investment portfolio.
Can we get some more SWF help here in the US to mitigate our infrastructure crisis?