Investment in infrastructure will become the fourth most important asset class in the portfolios of institutional investors (after equities, fixed income and cash); according to new research by UK-based independent research firm John Howell & Co, commissioned by AXA Private Equity. The massive expansion in government deficits due to the economic crisis means states will need to turn to the private sector for funding, opening up big investment opportunities for pension funds, insurers and sovereign wealth funds.
Dominique Senequier, founder and Chief Executive Officer of AXA Private Equity said: “We expect investment in infrastructure to become one of the major asset classes … With its characteristics providing a hedge against inflation, as well as its long term stable returns and relatively low risk, infrastructure is a natural match for the liabilities of institutional investors.”
The study, “Building Infrastructure Into the Portfolio – The Road to Performance and Diversification”, was commissioned by AXA Private Equity in the light of predictions from the Organisation for Economic Development (OECD) that infrastructure requirements will escalate worldwide in coming years.
The research concludes that annual infrastructure requirements for electricity transmission and distribution, road and rail transport, telecommunications and water are likely to average 3.5% of global gross domestic product (GDP) or $2.0 trillion a year, totalling $53 trillion by 2030. Adding in electricity generation and other energy-related infrastructure would increase the figure to $71 trillion. With government debt in the advanced G-20 economies projected to reach 118% of GDP in 2014, countries are under substantial pressure to access new sources of private finance or face the prospect of raising taxes and tariffs and slashing services.
The research also demonstrates that most institutional investors are well-suited to invest in infrastructure because of their scale and their long-term horizons. Many, notably pension funds, have long term liabilities that bear a linkage to inflation. Infrastructure as an asset class offers access to a long term inflation hedge, and therefore is attractive for pension funds to invest in.
About AXA Private Equity
AXA Private Equity, an AXA Investment Managers company, is a leading private equity firm with US$25 billion in managed assets and a global reach extending across Europe, North America and Asia. The firm offers investors the full spectrum of private equity services for every market segment: direct funds, infrastructure financing, mid cap and small cap buyouts, venture capital, co-investments, fund of funds as well as mezzanine financing. With offices in Paris, Frankfurt, London, New York, Singapore, Milan, Zurich and Vienna, AXA Private Equity supports the development and long-term growth of its portfolio companies with sustainable growth strategies and by granting them access to the AXA international network. AXA Private Equity has earned the trust of its investors by regularly supplying them with transparent performance data on its funds and portfolio companies.
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About John Howell
John Howell and Company Ltd brings together a group of professionals from banking, energy, public administration and academia whose record of co-operation goes back to 1993. It provides consultancy services to public and private sector clients, offering support at strategic, operational and tactical level in the identification and attainment of business or policy goals. Our activities cover all stages of the policy cycle, from research and planning through development and implementation to monitoring and evaluation. We add value by helping clients to allocate resources where they are most needed. Our areas of expertise are investor relations strategy, economics and finance, regulatory reform and compliance analysis, and risk.
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