Infrastructure may be down, but it's not out among pension funds internationally.
The economic crisis has dealt a few knocks to infrastructure as an asset class, weakening performance and strangling fundraising, according to consultants and managers. But institutional investors in Europe, Canada and Australia continue to be drawn to infrastructure's inflation-fighting characteristics and relative long-term stability when compared to other assets such as equity, they said.
“When we talk about infrastructure, many (clients) are still attracted to the long-term strategic perspective” of the asset class, said Duncan Hale, senior investment consultant at Watson Wyatt Worldwide based in London. “I don't see that changing.”
However the ability for managers to raise a war chest has been “significantly reduced,” with funds often targeting $500 million to $1 billion compared with $2 billion or more 18 months ago, Mr. Hale said in a telephone interview.
Clients are hesitant to add investments, in part because their exposure to infrastructure as part of the entire portfolio has increased above their target levels relative to other assets, most of which have suffered worse returns. Because infrastructure tends to require an investment horizon of at least six to eight years, investors also shy away from making such a long-term investment in times of economic stress, consultants and managers said. The rising cost of debt is another concern.
“The balance of power is back to the investors,” said Jerome Fremaux, managing director at Credit Agricole Asset Management Capital Investors, the private equity fund-of-funds division of CAAM based in Paris. CAAM Capital Investors is attempting to raise e500 million ($713 million) in its first infrastructure fund of funds to invest globally.
In the first half of 2009, infrastructure funds globally raised only $2.9 billion, according to data from Preqin Ltd., an alternative investment research firm based in London. In the first half of 2008, $17.1 billion was raised for infrastructure funds globally. For all of 2008, $33.7 billion was raised, about the same amount as in 2007.