186 billion euros investment backlog: German investors focus on infrastructure – but not in the home market

The gap is wide: While infrastructure is booming as an asset class in German institutional portfolios, little of this capital is reaching the domestic infrastructure. This is shown by the current Infrastructure Report of the German Association of Alternative Investments (BAI), for which 111 institutional investors with a total of €2.3 trillion in assets under management were surveyed.

The numbers speak for themselves. With 85 percent approval, infrastructure equity is the second most popular alternative asset class among the investors surveyed – just behind real estate. Infrastructure debt is growing even more dynamically: the proportion of invested investors is expected to rise from 49 to 59 percent. However, the capital is flowing primarily abroad.

The reverse home bias

Four out of five German investors invest their money primarily in foreign infrastructure projects. A phenomenon that experts refer to as "reverse home bias" – and which stands in stark contrast to other asset classes such as real estate, where German properties traditionally dominate .

"German infrastructure has so far benefited little from the asset class's boom," analyzes Florian Bucher, study author and market analyst at BAI. The reasons are obvious: too much bureaucracy, too few investable projects, too little return with too much risk. Maximilian Cosack of Huk-Coburg Asset Management explains that the share of German projects in his portfolio is therefore only 15 percent.

Energy transition as a ray of hope

In the renewable energy sector, however, things are moving forward. Approvals for new wind turbines skyrocketed by 85 percent in 2024. A third of investors plan to increase their allocation to Germany. Renewable energies (77.5 percent) and digital infrastructure (71.2 percent) are at the top of their shopping list.

But while wind farms and solar power plants are certainly finding buyers, municipal infrastructure remains a neglected asset. According to the KfW panel, municipalities report a €186 billion investment backlog. Private investors play virtually no role in financing—their share is a meager three percent.

Special funds as leverage?

The new federal government wants to change that. With the €500 billion special fund, €100 billion of which will go to states and municipalities, it is sending a strong signal. Experts see this as an opportunity to mobilize private capital – for example, through state risk assumption or first-loss components. "In order to reduce the multi-billion euro investment backlog of German municipalities, it is necessary to integrate state capital from the special fund with private capital," says Bucher.

"Government measures could help close the gap between risk and return expectations," says Andre Pfleger of LBBW Asset Management. Models such as the European Investment Fund show how this could work.

Uniform standards are missing

France shows how this could be simplified. There, standardized contracts, centralized specifications, and bundled projects lower the hurdles and attract investors. German municipalities, on the other hand, are cooking up their own scheme – with correspondingly high transaction costs for investors.

The new infrastructure quota in the investment regulations could help . Over half of investors would invest more if there were a nationwide regulation based on the NRW model. The course has been set. Now it's up to the federal, state, and local governments to act – with clear structures, transparent processes, and the courage to view private capital as partners.

You can read the full study here.