North American institutional investors are increasingly focused on domestic real assets as they navigate global economic uncertainty, with a significant portion planning increased allocations to infrastructure. This shift reflects a broader trend of asset owners seeking stable returns and growth opportunities within their home markets, a dynamic that is likely to intensify in the coming years.
According to recent data, approximately 52 percent of North American asset owners intend to invest in North American infrastructure opportunities over the next two years. This figure, consistent with previous observations, underscores the growing appeal of infrastructure as a resilient asset class. The interest isn’t limited to traditional infrastructure like roads and bridges; it extends to a wider range of real assets, including utilities, energy, and potentially even digital infrastructure.
The move towards domestic real assets is driven by several converging factors. Global uncertainty, encompassing geopolitical risks and macroeconomic volatility, is prompting investors to prioritize familiarity and control. Investing within North America allows for greater oversight and a reduced exposure to international complexities. The relative strength of the North American economy, compared to some other regions, makes it an attractive destination for capital deployment.
This trend is also being fueled by changes within the private markets themselves. The democratization of private markets, with the rise of retail-style funds, is opening up alternative investments to a broader range of investors. This increased accessibility is creating greater demand for assets like infrastructure, which were previously largely the domain of institutional investors. The surge in these funds has happened far sooner than industry leaders once imagined
, suggesting a fundamental shift in the investment landscape.
However, the growth of semi-liquid private markets funds is not without its challenges. North American managers are urging reforms to address concerns about liquidity and valuation. The demand for increased liquidity stems from the need for investors to be able to access their capital more readily, while accurate valuation is crucial for maintaining investor confidence and ensuring fair pricing. These reforms are essential for the continued growth and stability of the private markets.
The implications of this investment shift are far-reaching. Increased allocations to infrastructure could lead to significant investment in critical infrastructure projects across North America, boosting economic growth and creating jobs. This could include upgrades to transportation networks, improvements to energy grids, and the development of new digital infrastructure. However, it also raises questions about the potential for increased competition for attractive infrastructure assets, which could drive up prices and reduce returns.
Europe is also experiencing a similar trend, with regulatory reforms, digital innovation, and investor demand combining to unlock private markets for a wider audience. While the specific dynamics differ between North America and Europe, the underlying theme of increased investor interest in alternative assets remains consistent. This global phenomenon suggests a broader re-evaluation of asset allocation strategies in response to the changing economic environment.
For asset owners, navigating this evolving landscape requires careful consideration of risk and return profiles. Infrastructure investments, while generally considered less volatile than equities, are not without risk. Factors such as regulatory changes, construction delays, and operational challenges can all impact returns. Thorough due diligence and a long-term investment horizon are essential.
The increasing focus on domestic real assets also has implications for asset managers. Those who can successfully source and manage attractive infrastructure investments will be well-positioned to benefit from the growing demand. This will require expertise in areas such as project finance, risk management, and regulatory compliance. The ability to offer semi-liquid private markets funds, addressing investor concerns about liquidity, will also be a key differentiator.
Looking ahead, the trend of North American asset owners increasing their allocations to domestic real assets is likely to continue. The combination of global uncertainty, attractive investment opportunities, and the democratization of private markets is creating a powerful impetus for this shift. While challenges remain, the potential benefits – both for investors and the broader economy – are significant. The coming years will be crucial in determining how effectively these investments are deployed and how successfully the private markets adapt to this new era of growth and innovation.
