Two thirds of surveyed investors with an appetite for infrastructure say they will increase their allocations to the asset class over the long term, with none planning to reduce allocations. These findings are revealed in an extract from the Preqin Investor Outlook: Alternative Assets H1 2015.
Infrastructure continues to grow as an independent alternative asset class, but the market remains relatively small when compared to other alternatives. This means that many of the institutional investors currently active in the space are either new to the market or relatively inexperienced, and their preferences are continuing to evolve as they explore the best ways to gain exposure to the asset class. As a result, it is vital for infrastructure fund managers to be aware of and adjust to changing investor attitudes in order to ensure their offerings are meeting the needs of institutional investors.
Investors’ infrastructure commitments in 2015
There is a mixed view from investors as to whether they will be upping or reducing their capital outlay to infrastructure in 2015. While the majority of respondents expect to commit more capital in 2015 than they did in 2014, or to maintain their level of outlay to infrastructure, a notable proportion expect to put less capital to work (Fig 1.1). This may be a reflection of high valuations for infrastructure assets and the impact on the availability of attractive investment opportunities, with investors electing to delay making fresh commitments in 2015 as a result.
Investors’ infrastructure allocations over the long term
In the longer term, the prospects for the continued growth of the asset class remain very positive. The average current allocation to infrastructure across the entire infrastructure investor universe is 4.3% of total assets under management. However, as these investors become more experienced in infrastructure, build up investment teams and become more comfortable with the risks associated with investing in the space, it is likely that allocations will increase. Two-thirds of surveyed investors intend to increase their infrastructure allocations over the long term. An additional 33% plan to maintain their current level of exposure, while none of the investors surveyed suggested plans to reduce their allocations.
Future searches and capital outlay
Preqin’s Infrastructure Online service tracks the activity of over 2,400 active investors in the infrastructure asset class, through which we are able to monitor the changing investment strategies of these institutions as well as their plans for future investment. As shown in Fig 1.2, 53% of investors with plans to make further investments in 2015 expect to invest at least USD100m in fresh capital. This includes a considerable 19% that expect to invest at least USD500m over the course of the year.
This shows that many institutional investors are planning to make sizeable investments in infrastructure opportunities throughout 2015. Forty-three percent of active investors expect to make at least three investments over the next 12 months. This includes 10% which plan to make at least five investments in the coming year.
In terms of investors’ regional preferences for 2015, the largest proportion of investors (49%) will be targeting investments in Europe. North American infrastructure assets will be sought by 35% of institutions, with Asia and countries outside these three core regions each targeted by just 15% of investors. Many infrastructure investors prefer geographical diversification when investing in infrastructure, and as such a considerable 36% of investors target global infrastructure investments.
This is an extract from the special report, Preqin Investor Outlook: Alternative Assets H1 2015. The report comprises a comprehensive analysis of investor activity in 2014, their plans for the next 12 months and their views on the most important issues and challenges.
The 48-page report covers private equity, hedge funds, infrastructure, real estate and private debt, and can be accessed for free by completing the form below.
