Asian asset owners flock to European infrastructure fund

Asian asset owners have shown strong interest in the Macquarie European Infrastructure Fund 7 (MEIF7), which hit a landmark €8 billion ($8.65 billion) in investor commitments at its final close earlier in January.

Asian institutional investors are increasingly favouring European infrastructure funds over regional opportunities, according to Macquarie Asset Management.

Adam Lygoe
Macquarie Asset Management

“Investors are attracted to Europe as it is a large and mature destinate for infrastructure investments. This is due in part to Europe’s mature regulatory frameworks, strong rule of law, and public acceptability of private investment in critical infrastructure assets,” Adam Lygoe, head of institutional and international wealth distribution at the asset manager told AsianInvestor.

“Part of the attraction of investing in regional funds is due to the fact that many infrastructure investors have increasingly mature infrastructure portfolios and therefore now would like to have more control over the regional exposure they have, rather than invest in a small number of global funds where the investment manager decides on the exposure,” said Lygoe.

UNCERTAIN TIMES

In the face of recent turmoil in global economic markets, Lygoe believes more investors are seeking greater diversification and making larger allocations to alternatives, which have already proven their resilience.  

The asset class also presents a significant growth opportunity in these uncertain times, he said.

“We believe institutional investors are still underweight infrastructure, which means there is considerable demand for this kind of investment opportunity,” said Lygoe.

Much of MEIF7’s success—as the asset management industry’s largest-ever fund focused on European infrastructure—is due to the key themes present in the fund, which are particularly appealing to investors seeking to diversify while addressing global challenges.

KEY THEMES

Growth prospects for infrastructure companies are expected to be strong in 2024, according to a ClearBridge Investments 2024 outlook for infrastructure.

“Much of this growth will be driven by the energy transition as the world addresses its need to build out the networks of poles and wires to connect all the renewable facilities generators,” the December 2023 report noted.

“A public policy tailwind is particularly prevalent in the US (following the Inflation Reduction Act or IRA) and Europe (following REPowerEU and the Green Deal Industrial Plan). We expect this to strengthen in 2024, given it will be an election year in many jurisdictions.”

MEIF7's investment strategy is closely aligned with the prevailing global focus on the key market themes of the energy transition, digitalisation, the circular economy, and demographic shifts.

“On the energy transition - awareness of the need to decarbonise the economy is growing, and current volatility in the energy system is driving an even greater focus from policymakers and investors on opportunities to accelerate the energy transition,” said Lygoe.

The digital realm is also a significant area of investment, with the need for substantial digital infrastructure to support increased online activity.

“The scale and pace of this investment cannot be met by most telecommunications companies, with deep and long-term institutional capital pools – like infrastructure funds - well suited to bridge the funding gap,” said Lygoe.

Asian investors are coming forward eagerly to contribute to these vital transitions, he added.