Pension funds and insurance company investments in infrastructure worldwide could rise to an average of 4% of assets under management over the next five years as institutions fill a ‘gaping hole’ between infrastructure investment needs and public sector funds.
The gap between the needed investment in infrastructure and the available public sector funds could reach $500 billion ($369 billion) a year between now and 2030, says Standard & Poor’s (S&P), a ratings agency.
But S&P adds that institutional investors are likely to increase their allocations to help fill the breach left by governments and banks and that some institutional investors, principally pension funds, have already raised their target allocations to the infrastructure sector to between 3% and 8% of their assets under management.
An S&P report – Global infrastructure: How to fill a $500 billion hole – says that an average of about 4% of assets under management invested in infrastructure over the next five years would be more than double the current level and could potentially provide about $200 billion per year in additional funding for the sector.
The funding needs for infrastructure around the world will be over $3 trillion annually over the next 16 years.
“Yet capital investment by governments in the US and Europe has dropped from about 3% to 2% of GDP since 2009, leaving a gaping hole in funds that are required to pay for economically vital transport, power and water projects,” S&P says.
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