15/07/2019 by Jean-François Boulier
French Institutional Investments in Infrastructure

Af2i is a French non for-profit association aiming at representing the interests of Institutional Investors. Created almost 18 years ago, it regroups presently 81 institutions who manage together more than 2.5 trillion euros, which corresponds to 85% of the French market, the fourth in size worldwide. Af2i helps its members by undertaking workshops, by publishing guides and organizes several events to inform its members and promote their views as well as best practices. Every year, a survey presents asset allocation of French institutional investor portfolios and their expected evolutions. 

Alternative assets represent around 10% of their portfolios with a little above 6% in real estate and 2% in private debt. In 2019, only about 1% of the assets (25bn €) of the respondents were invested in infrastructure assets. These levels grow slowly and remain far lower than in other European markets like Netherlands or Switzerland, for example. Overwhelmingly invested in bonds, on average at 72%, the French institutional portfolios mostly seek to deliver revenues in the medium term and reflect the long-term nature of the liabilities.

Infrastructure bonds offer an appealing alternative to government bonds, at least a useful diversification to large sovereign bond portfolios which represent on average about half of the exposure to interest rate instruments. Development in infrastructure equity is more recent and concentrated in a few institutions with experienced teams. Liquidity remains an issue for the institutional investors but expertise and costs are also slowing the pace of adoption of these asset classes. New European investment plans, similar to the former Juncker plan, better information and simplification of the processes may bring additional interest in the future.

Finally, as ESG considerations are now mainstream in France, financing features related to infrastructure could be an opportunity for new developments. From very specific green bond issued by an infrastructure project vehicle to investment funds specialized in infrastructure with a strong ESG process, infrastructure investment may benefit from this very strong trend in France.