Investors worldwide are increasing their holdings in infrastructure assets to meet growing demand for financing to upgrade electricity, water and traffic projects, said Joyce Shapiro, managing director at Franklin Templeton Investments. (BEN)
Institutional investors around the globe currently have as much as 5 percent of their portfolios allocated to the asset class and that may double in the next five to 10 years, said Shapiro at Franklin Templeton Real Asset Advisors, which has $4.1 billion in assets as of June.
An increase in private sector investments in infrastructure projects will be “essential” as governments around the world face financial strains, the Organization for Economic Cooperation and Development said in a report published in March. Investors are seeking infrastructure investments as ways to hedge inflation and pursue stable returns, Shapiro said.
“There is a tremendous amount of room for growth for that kind of alternative asset sector,” Shapiro said in an interview in Singapore on Sept. 25. “Many investors these days want secure returns. In many of these different sectors, we can find areas of opportunity to invest into assets that have inflation linkage as opposed to taking that open or economic cyclical kinds of risks.”
Templeton prefers projects that offer steady returns and low volatility, Shapiro said. She cited a road in Florida as an example, saying that an insurance company that was looking for an asset yielding 9 percent to 9.5 percent invested after 75 percent of the project was completed. Shapiro declined to name the insurer.
Still, there is no rule of thumb for the expected return of an infrastructure project, Shapiro said. It varies a lot, depending on the stage of its development.
“There is no magic number, there is a range of numbers,” she said. “You can go in a late-stage project in a developed market or you can go in a new project in an emerging market place entailing a lot of cyclical risk.”
Investment opportunities can be found in small and mid- sized projects that are sought after less by bigger “multi- billion dollar funds,” Shapiro said. The average size of a project pursued by Franklin Templeton Real Asset Advisors ranges from $10 million to $100 million, she said.
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