SWFI Trend Report: Sovereign Wealth Fund Direct Infrastructure Investments, 2003-2014

sovereign wealth fundSovereign wealth funds surpassed US$ 7 trillion in assets before the end of 2014. These institutional investors typically have unique liabilities compared to public pensions. Many of the large sovereign wealth funds, funds with over US$ 30 billion in assets, seek long-term investments. When it comes to infrastructure, sovereign wealth funds pursue accommodating investment regimes, low political risk, assurances from government and opportunities to earn stable financial returns.

According to our research, Asia and Europe top the list as the largest recipients of direct infrastructure investment by sovereign wealth funds, followed by Australia and New Zealand. The Americas ranks dead last, even behind Africa. Breaking apart the Americas, South America has few large direct infrastructure investments by sovereign funds, the bulk going to North America. Notable infrastructure investments by sovereign wealth funds include investment in natural gas infrastructure – sovereign wealth funds’ private infrastructure investment in Cheniere Energy’s Export LNG Plant. Sovereign wealth funds also tend to favor investing in airports in Western Europe and transportation infrastructure in Australia. The vast majority of sovereign wealth funds investing in direct infrastructure prefer energy, transportation and telecommunication infrastructure.

“North America ranks behind Asia and Europe when it comes to sovereign wealth funds directly investing in infrastructure. Clearly, there is an opportunity for wealth funds to contribute to U.S. infrastructure,” said Michael Maduell, President of the SWFI in regard to the report.

It is important to note, however, that for this report SWFI looked at direct transactions into infrastructure, not fund commitments into infrastructure funds that invest in those regions. The importance of the allocation to infrastructure funds should not be discounted. Many sovereign wealth funds invest in infrastructure funds, especially investors with smaller balance sheets, to access opportunities with lower committed capital amounts, greater liquidity and lower idiosyncratic risk.

Outlook on Direct Infrastructure by Sovereign Wealth Funds

Infrastructure is key asset class for sovereign wealth funds, representing exposure to real assets. The long-term characteristics of infrastructure, combined with the attributes and time horizon of large sovereign wealth funds, make allocating capital attractive. The big hurdles for 2015 are the available opportunities in infrastructure, political risk and fair prices of developed assets.

This brief SWFI trend report charts and graphs direct infrastructure investments made by sovereign wealth funds.

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Source: SWFI – Sovereign Wealth Fund Transaction Database -www.swftransaction.com, February 24, 2015

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