Landmark new research reveals private equity and infrastructure top unlisted investment picks

Private Markets 700 reveals 54 per cent of institutional investors will invest in infrastructure equity by 2029 – up from 46 per cent over the next 12 months – while 50 per cent will invest in infrastructure debt in five years’ time – up from 45 per cent. 

More than half (55 per cent) of institutional investors believe new partnerships between private capital and governments will create new opportunities for infrastructure investment. 

“Governments worldwide are grappling with tighter finances, so they are creating favourable conditions for private sector funding to support their infrastructure projects,” said Nikulina.  

“Respondents to our survey have predicted expectations of net average returns for infrastructure equity investment above 11 per cent – demonstrating its potential for both robust performance and stability.” 

Private markets investment – regional projections and investor segment findings 

The global study of institutional investors finds that EMEA investors will maintain the strongest exposure to real estate, with 11.81 per cent mean allocation over the next five years, while APAC will take the lead in private equity and private debt allocations from North America. For infrastructure debt exposure, APAC is expected to eventually surpass EMEA.  

The research also demonstrates that insurance respondents are looking mostly to Europe and North America for private market investments, while North American and APAC investors hold a ‘home bias’ when investing in private markets.  

The megatrends shaping investment, as investors move up the risk curve 

According to IFM’s research, investors say capturing the illiquidity premium and increased returns are the primary catalysts for infrastructure investment.  

Private Markets 700 also reveals the key global megatrends foremost on institutional investors’ minds when it comes to infrastructure investment strategies. The rise in new technologies such as AI, IoT and automation is first, with 69 per cent of investors reporting it has a strong or very strong impact on their strategies. Energy transition and global supply chain shocks are next, followed by interest rate and commodity price volatility. 

The survey has found that long-term infrastructure investors are increasingly moving up the risk curve, seeking to capitalise on the illiquidity premium of assets.  

More than a third (36%) of investors surveyed are choosing Core or Core-Plus investments with net rates of return between 5% and 12%. A significant proportion are targeting high-growth segments with 45% investing in Value-Add - a strategy focusing on assets that generally require enhancements with the intention of generating returns of 13% to 16%.  

Just under a fifth of respondents (19%) are focusing on the Opportunistic infrastructure segment, where assets may need to be developed in their entirety to achieve returns of 16%-plus.  

Infrastructure and sustainability: social equality creates value 

According to the survey, more than 80 per cent of institutional investors say social infrastructure – infrastructure that contributes to economic growth and serves the needs of communities – such as schools, hospitals or stadiums – plus environmental infrastructure – including renewable energy systems and green buildings – are priorities for debt and equity investment. 

Funds dedicated to the energy transition and environmental infrastructure have grown significantly in recent years – now representing a total market of $1.8 trillion USD in 2023, according to BloombergNEF. 

Private Markets 700 reveals a higher proportion of US-based investors in our research (82 per cent) regard energy transition-focused funds as a particularly attractive opportunity in infrastructure investments – above the 75 per cent average rate across the globe. 

“Commercial interests in the US have recognised the massive energy transition opportunity. This is in part driven by the Inflation Reduction Act, which has been particularly influential as it offers tax incentives for building renewable energy projects such as solar and wind,” said Nikulina.  

Last month, IFM Investors released a landmark blueprint in conjunction with some of the UK and Australia’s largest pension funds, aimed at identifying policy recommendations to unlock investment opportunities for pension capital to help fast track clean power by 2030. 

To read Private Markets 700, visit www.ifminvestors.com/privatemarkets700