In this new report, Mark Weisdorf, portfolio manager, J.P. Morgan Asset Management OECD Infrastructure Equity, predicts that the early mover window will close over the course of the next few years, with discount rates compressing by 100 basis points or more. He explains:
- Core infrastructure currently offers a return that appears more than commensurate with its relatively low risk profile, suggesting the returns may moderate as risk-return perceptions evolve.
- Demand from institutional investors is likely to increase, since U.S. pension plans, more recent movers into the asset class, currently have average allocations of less than 1%, while many institutional investors outside the United States are below their larger target infrastructure allocations.
- The increase in supply of mature, "institutional quality" core infrastructure assets is likely to lag the increase in demand, suggesting a near-term increase in the value of assets, compressing discount rates and future rates of return.
Weisdorf comments:
"We believe that we are rapidly approaching a tipping point where institutional investors who are searching for income, frustrated by lackluster economic growth, and dissatisfied with the volatility of public equity markets will turn to infrastructure in larger numbers and with greater allocations,"
"This move could result in discount rate compression, pushing asset values steadily higher. We expect this to happen over the next two to three years, to the benefit of incumbent infrastructure investors."
