INFRASTRUCTURE GAP AND THE NEED FOR A NEW LONG TERM INVESTMENT MODEL
Years after the onset of the 2008 financial crisis, the world economy remains highly unpredictable.
Institutional investors seek alternatives to volatile and highly correlated listed equity investments on the one side and record low bond yields on the other side. This is driving a shift in asset allocation towards real assets (e.g. real estate and infrastructure) that can provide higher income than bonds and superior risk adjusted returns to equities.
In the local Nordic institutional investor perspective, allocations towards real estate have always been material but the infrastructure asset class is now gaining momentum.
This is also driven by the public sector growing interest to seek alternative solutions, outside of the tax system, to the development and financing of their infrastructure needs.
Various Swedish institutional investors are currently considering changes in their allocation strategies to include or expand allocations towards the infrastructure asset class.
The public sector is struggling to finance alone the investments needed to bridge the infrastructure gap i.e. where demand and supply of infrastructure assets meet. According to OECD and McKinsey, the infrastructure investment need up to 2030 is estimated to USD 57 trillion globally and USD 9 trillion in Europe. With a local perspective, Svenskt Näringsliv has estimated the investment need to be approximately SEK 300 billion just to get the transport infrastructure in Sweden up to par.
At the same time, long term bank lending is becoming less available, driven by deleveraging and regulatory restrictions including the Basel III rules. Long term institutional investors are becoming increasingly important in bridging the funding gap and helping reduce the infrastructure gap, both via direct investments and, indirectly, through long term infrastructure investment platforms.
The cost and incentive structures typical of private equity funds are not fully adequate to align the manager and the investors in executing a long term infrastructure investment strategy. New long term infrastructure investment models are required that step away from the current private equity setup.
Infranode positions itself as one such model with the aim to become a leading long term infrastructure investment platform in the Nordics.