In its 2016 Global Infrastructure Report, Preqin finds that both fund managers and investors are concerned with sourcing deals at compelling pricing in 2016.
The average size of infrastructure transactions completed in 2015 stands at a record USD528 million, and the majority (51 per cent) of surveyed fund managers said they are finding it more difficult to find attractive investment opportunities compared to a year ago. Valuations and deal flow were each cited as key concerns by the highest proportion of investors (38 per cent). Nevertheless, fund managers are confident in their ability to deploy capital, with 77 per cent stating that they intended to deploy more capital in 2016 than last year.
Investors increasingly seem to be trusting in the ability of seasoned managers to find good value opportunities. More than half (52 per cent) of the capital raised by unlisted infrastructure funds in 2015 was secured by the six largest funds to close in the year. Furthermore, 44 per cent of investors said they will not invest in first-time funds in the coming year, the highest proportion ever.
Eighteen percent of institutional investors said that their investments had exceeded their expectations in 2015, up from 3 per cent at the end of 2014. However, 24 per cent felt their investments in 2015 had fallen short of expectations, up from 14 per cent a year ago.
Unlisted infrastructure funds distributed a record USD34 billion to investors in 2014, and the first half of 2015 saw a further USD22 billion in capital distributions. This is the first time that the flow of distributions has exceeded the equity called up for new investments, which equalled USD17 billion in H1 2015.
Nearly half (48 per cent) of investors plan to invest more capital in infrastructure in 2016 compared to 2015. In the longer term, 91 per cent of investors plan to increase or maintain their infrastructure allocations, down from 100 per cent at the end of 2014.
Almost three-quarters (74 per cent) of surveyed fund managers stated that they have seen an increase in investor appetite over the past year, while only 4 per cent said they were seeing less.
After deal flow (38 per cent) and valuations (38 per cent), the largest proportion of infrastructure investors (32 per cent) cited performance as a key issue in 2016. Conversely, only 2 per cent of fund managers anticipate achieving performance objectives as a challenge in 2016.
“The infrastructure market has seen steady growth over the past few years, and the asset class now forms a fixture of many institutional investors’ portfolios,” says Andrew Moylan, Head of Real Assets Products at Preqin. “Overall, investor sentiment is positive, and the record levels of distributions from funds over the past two years have allowed an increased level of capital to be re-invested into the asset class. With many investors planning to invest more capital in both the short- and long-term, infrastructure could see increased capital inflows through 2016.
“This increase in available capital, though, has put pressure on fund managers to find opportunities at attractive pricing, and many are finding it harder to put capital to work effectively. Investors are also increasingly concerned about the ability of the managers they invest with to find value in the market, and we are seeing more capital being allocated to the managers with the longest track records.”